Sole Proprietorship
Advantages to a sole proprietorship is that the owner has total control and the simplicity of formation for the corporation. With a sole proprietorship, the proprietor is the only owner of the company and runs the whole company. As far as formation is concerned, the government doesn’t require anything from the proprietor in order to create and start their sole proprietorship. There are filings which do need to be completed, but they are not required by the government. The taxation of a sole proprietorship is simple and straightforward. The profits of the company are considered the personal income of the proprietor. However, the proprietor may lose out on certain benefits associated with being taxed as a business.
While a sole proprietorship, in some states, can be owned by more than one person, Betty and Betsy will need to aware of their actions so that the IRS and the state do not have a reason to imply a partnership, or other business form, due to their actions of holding themselves out as anything other than independent. (Unif. Partnership Act §202(c)(3). Should this occur, Betty and Betsy could be subject to business and tax requirements they had not anticipated.
The disadvantages of a sole proprietorship are unlimited liability to the owner for the business debts and obligations (no liability shield), the difficulty in raising capital and very low liquidity in ownership of the business (if you sell a percentage of the company the business is no longer a sole proprietorship. Should the company remain small, the difficulty in raising capital will not cause a problem, but should the business grow and need to obtain more capital, the business may need to incorporate to satisfy the requirements for a bank loan. As to liquidity, a business that is a sole proprietorship is easy to liquidate for the reason that the proprietor is the