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Pros and Cons of a Sole Proprietorship

If you plan to operate your business on your own, a sole proprietorship may be an acceptable and appropriate legal business form for your needs. Find out what sole proprietorships are, and whether or not that legal business form would suit your small business.

What is a Sole Proprietorship?

A sole proprietorship is a business with only one owner, that’s not a corporation of any kind. Many business owners automatically start a business as a sole proprietor when they launch their small business.

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Pros of Sole Proprietorships

  • Sole proprietorships are easy to set up.
  • Sole proprietorships are inexpensive to set up.
  • Sole proprietors don’t have to keep as many records for the IRS as corporations do.
  • Sole proprietors control their business finances and profits exclusively.
  • Taxes are simpler for sole proprietors, as income is declared on their personal income tax forms.

Cons of Sole Proprietorships

  • The business owner will be held personally liable for debts of the business.
  • It can be harder to raise startup capital and financing for a sole proprietorship as opposed to corporations and other legal business structures.
  • It can be easier for the IRS to declare a sole proprietorship is a hobby rather than a business for tax purposes as opposed to other business structures.
  • All business losses are on the shoulders of the business owner alone.

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