Most of the businesses are done by individuals in their individual capacity, commonly known as “Sole Proprietorship” or “Sole-Practitioner” or “Self-Employed”.
Sol-Proprietorship stands for the function that is performed in one's individual capacity. He or She, bring his or her idea and will start business activity almost with no or very little formalities.
Merits of Sole Proprietorship:
No requirements for formation or registering except you may have to register business name with the county office, which is a simple process.
No formalities are required such as Board Meeting or forming buy-laws. Sole Proprietorship will have his or her own business rules.
Sole proprietorship enjoys full authority and managerial control on his or her business.
Sole-Proprietorship can control business cost at individual level and at own decisions.
Sole proprietorship is good for small businesses in retail and service industries.
Opening, relocating and closing is virtually simple in sole proprietorship set up.
Tax filing is simple, as the detail of revenue, expenses and net profit is included on sole practitioner's personal tax return by using schedule “C”.
In certain situation, one person control is always considered better, if that person is enough capable.
Sole Proprietorship business has to be in profit, as no one can afford losses in individual capacity for long time. Therefore sole-proprietorship business has more probabilities of a profitable venture.
Local & State Governments, Banks, and several other agencies deal with small businesses, have several programs for the benefits of small businesses, where sole proprietor can mostly be eligible and benefited.
Sole Proprietorship can easily form their own local business associations for the mutual benefits and protection.
Business policies, customer services, diversions, pricing policies and other such issues are very flexible to amend in a sole proprietorship business to match with the current market requirement.
Demerits of Sole Proprietorship:
First thing, it does not have all features and benefits of a corporation or any other type of entity established under separate legal entity concept. See corporation later.
In a sole proprietorship owner is personally liable for all obligations and debts, and his or her, all or some personal assets are attached to business risk.
Business life is limited with the life of the sole proprietor, that means business will die with the death of sole proprietor.
Sole proprietorship form of business is not good for expanded level such as State, National or international level businesses.
Sole proprietorship does not attract professional employees or manager or cannot afford professional management or advance technical services.
Retaining employees may also be a problem for sole proprietor for lack of corporate benefits programs and corporate environment.
Sole proprietor entity is also poor in attracting investors.
Expansion of business and business controlling activities is also hard in sole proprietorship setup.
Sole proprietorship faces hard competition, and hard to afford professional & costly advertisements.
Sole proprietorship business is hard to reach at monopolistic level and earn super profit.
Keeping in view the several benefits of corporation structure, most of even small businesses, though they can function in sole proprietorship setup but still prefers to adopt corporation structure. The consideration to setup a corporation entity would be:
Corporation is a complex structure to setup and maintain: