Sole Proprietorship

Sole proprietorship means that one person independently owns and operates an unincorporated business for profit. The business is considered an extension of the owner rather than as a separate legal entity. For tax purposes, the profits/losses of the business are combined with other owner income sources.

Advantages:

1.    Simplest form of ownership to establish and operate

2.    One owner

3.    Owner has complete control over management decisions and policies

4.    Use of all profits at the discretion of the owner

5.    Limited paperwork to state and federal agencies

6.    All losses are incurred by the owner (owner’s income directly linked to success/failure of business

Disadvantages

1. All management decisions—staffing, policies, problems—must be handled by owner
2. Owner personally liable for all debts, taxes, and claims incurred by the business
3. May be difficult to raise capital (i.e., will depend on owner’s credit history)
4. Continuity of business disrupted by owner death or disability
5. Combined with other income sources, profits taxed at owner’s individual tax rate