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Sole Proprietorship Business Format

Putting up and starting your own business requires detailed planning. Besides being absolutely clear about the kind of business you want to do and how you want it to run, you will also need to have the knowledge and skills necessary either in accomplishing all the legal details, hiring the right people and managing them well, or in hiring the person/s who can do all of these for you. Before taking off towards this endeavor, though, there is one more basic need that you also have to decide on: the format your business will have.

There are four types of business formats that are most common in the U.S.: Sole Proprietorship, Partnership, Corporation and Limited Liability Company. Each type of format has its own advantages and disadvantages with regard to profit, management, legal matters and liabilities.

Sole proprietorship, particularly, is a type of business that is owned and run by just one person. About 73% of all firms in the nation are registered as sole proprietorship, making this the most widespread business format in the U.S.

Sole proprietorship has the following advantages and disadvantages:

  • Advantages
    • Despite being the smallest form of business entity, it can earn the highest profits and, since the business and you, its owner, are taken as just one entity, one tax payment satisfies the federal tax law required.
    • It is easy to start and much easier to manage as there will be no clashing of interests, which is often the case in business formats with multiple owners.
    • Decisions are made faster and there is also greater flexibility in making decisions.
    • If ever you want to end the business, all you have to do is end operations and settle whatever loans need to be paid.
  • Disadvantages
    • Your liability is unlimited, meaning, creditors can run after your personal assets in payment of debts
    • Since there is only you to start the business, the amount of capital will be higher. If your capital is limited, this will affect the stock inventory and number of qualified or competent employees you will be able to hire to run the business efficiently.
    • You may also have limited managerial skills which can limit the growth of your business.

According to the firm Russo, Russo & Slania, P.C., every business has unique needs, and different business models may be more appropriate for different types of company. Forming a company, however, and dealing with all matters required, especially legal matters, can be stressful on your own. With guidance of a knowledgeable and experienced business attorney, however, you can rest assured that critical legal errors that could affect your company’s beginnings and, eventually, success will be avoided.