Discuss the advantages and disadvantages of sole proprietorship.
Advantages of sole proprietorship:
- Ease of formation: The paperwork and costs involved in forming a sole proprietorship are minimal.
- Retention of control: Ability to manage your business the way you want.
- Pride of ownership: The feeling of pride and satisfaction gained from owning and running a business.
- Retention of profits: If you business is successful, all the profits go to you.
- Possible tax advantage: No taxes are levied directly on the earnings of sole proprietorships as a business. Instead, the earnings are taxed only as income of the proprietor.
Disadvantages of sole proprietorship:
- Limited financial resources: With only one owner for a sole proprietorship's debts, banks and other financial institutions are often reluctant to lend it money.
- Unlimited liability: Because the law views a sole proprietorship as an extension of its owner, the debts of the firm become the owner's personal debts. If someone sues your business and wins, the court can seize your personal possessions and sell them to pay the damages.
- Limited ability to attract and maintain talented employees: Most sole proprietors are unable to pay the high salaries and substantial perks that highly qualified, experienced employees get when they work for big, well-established companies.
- Heavy workload and responsibilities: Very long hours and a lot of stress.
- Lack of permanence: If the owner dies, retires, or withdraws from the business, the company legally ceases to exist.
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