Sole Proprietorship in the U.S.
According to Financial Web, more than 70 percent of businesses in the United States are sole proprietorships. In contrast to traditional corporations, which can have many owners and shareholders, a sole proprietorship is owned by just one individual. The products and services of these types of organizations vary greatly, as well as their revenues. Just like any business type, there are distinct advantages and disadvantages to owning a sole proprietorship.
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Advantage: Ease of Entry
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Starting a sole proprietorship is much easier, faster and more cost effective when compared with setting up a traditional corporation. Oftentimes, this type of business can be established simply by obtaining a local business license. Depending on the type of service and product sold, a sales tax permit and additional state or local licenses may be required. The ease of entering into this type of business makes it one of the most popular types of business ownership in America.
Advantage: Autonomy and Control
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With a corporation, managers are required to act in the best interests of shareholders who collectively own the organization. This requirement drives many business decisions and influences day-to-day operations. Individuals who establish a sole proprietorship enjoy complete and total control of their business operations. While it is important to make sound business decisions, there are no shareholders to satisfy, and the strategic direction is determined by the the owner.
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Disadvantage: Liability
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One major disadvantage to operating a sole proprietorship is legal and financial liability. With this type of organization, the business and the individual are viewed as the same legal entity. If a lawsuit is brought forth against the business, the individual owner is personally liable and his or her personally assets are at risk. Sole proprietors also CAN be exposed to considerable financial risk. Business have the potential to generate millions of dollars but can lose just as much. Sole proprietors are personally responsible for all business debts, including taxes, which is a massive risk to the business owner, especially if there is a substantial loss.
Disadvantage: Capital
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In contrast to most forms of business, corporations are able to raise additional capital by selling ownership through stock offerings. Because of the structure of their business, sole proprietors do not enjoy this benefit and must rely on other forms of funding. These limitations in financing options make it difficult for sole proprietors to attract outside investors and retain quality employees by issuing stock options. This can hinder an organization's growth and weaken its ability to compete effectively.
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