A sole proprietorship is a business that is owned by one person. It is the simplest type of business to start. There are several important features of a sole proprietorship. First, the business and the owner are considered to be one entity under the law. Second, all of the assets of the business are personally owned by the sole proprietor. Third, the sole proprietor is not considered an employee of the business. Because of this, the sole proprietor is not eligible for employment insurance if the business fails. The sole proprietor is not paid a salary, but instead can take money from the business through personal drawings.
Owning a sole proprietorship has several advantages and disadvantages, including important tax implications.
Advantages .
One of the advantages of being a sole proprietor is that you can be your own boss. You can make business decisions without having to ask anyone else. You also get to keep the profits from the business and you have the freedom to end your business whenever you want. A sole proprietorship is the easiest form of business to start. And, although you need to keep separate accounting records for the business, you only need to file one tax return.
Disadvantages .
Owning a sole proprietorship also has disadvantages. The owner is personally responsible for all aspects of the business. If the business is being sued, so is the business owner. If the business owes money, the business owner is responsible for the debt, and the owner may have to use personal assets to pay. If the owner cannot pay the debts of the business, he or she may have to claim personal bankruptcy. The only way to transfer ownership of a sole proprietorship is to sell the entire business to someone else. Otherwise, the life of the business ends when the sole proprietor dies.
A partnership is an unincorporated business that is carried on by two or more people who intend to share the business profits. Partnerships have at least five important features.
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