Principles of Business – P2DB Sole proprietorship is one of the simplest and the most common form of business. It is very popular in the United States, and many small businesses prefer sole proprietorship when starting their business. Sole proprietorship is the type of business entity, which is managed and owned by one person. However, similar to any other type of business, it has its own advantages and disadvantages. The advantages of sole proprietorship are as follows. First, this type of business entity is the simplest and easiest to get started, as it requires minimal legal costs to creating a sole proprietorship. Sole proprietorship offers its owners the greatest freedom of actions and maximum authority.
In addition, the small business companies have income tax advantages (for example, the absence of corporate tax payments).
Finally, there is also social security advantage to the sole proprietorship owner (Sole Proprietorship Advantages and Disadvantages).
However, before starting sole proprietorship, the businessman has to be aware of potential threats and disadvantages of choosing such form of business entity. First, the liability is unlimited. Next, it should be taken into consideration that as far as the owner of sole proprietorship business entity owns and manages the company alone, his illness or death may endanger business. In addition, the potential growth of the company is limited to the owners personal energies.
The Essay on Sole Proprietorship: A sole proprietorship is owned by only one person
All profits and losses are the responsibility of the owner only. Liability – There is unlimited liability in a sole proprietorship. The owner is solely responsible for any debts that may occur. Income Taxes – The business files taxes as one single unit. Because profits are not shared, they are considered personal income to the sole proprietor. Longevity/Continuity – In a sole proprietorship if the ...
Finally, the personal affairs of the businessman are easily mixed with business, thus creating additional difficulties and dangers for efficient growth of the business company. Partnerships also have their advantages and disadvantages. For example, general partnerships, consisting of two and more partners both responsible for the business, are taxed in the same way as sole proprietorship, provide an opportunity to raise capital quickly, and allow partners to combine resources and expertise. However, the disadvantages are as follows: the partners may have different business vision or goals, and they may also have personal disputes. The partners may be personally liable for business liabilities and debts (also for actions undertaken by the other partner), difficulties in attracting investors (Harroch, 2006), to mention a few. What concerns forming a corporation, the advantages are limited liability, corporate tax treatment (as the corporation pays taxes separate from the owners), the structure of the corporation makes it attractive to the investors, and allows to hire talented employees, as the owners may offer them an ownership interest in the form of stock or stock options), freely transferable shares, and, the last but not the least advantage is the perfect operational structure (Harroch, Advantages and Disadvantages of Forming a Corporation, 2006).
However, there are some disadvantages, such as relatively high fees to create a corporation, proper corporate formalities, and huge paperwork. In addition, there are tax consequences to be considered, as C corporations may encounter double-taxation, when the corporation makes profit, and when it has to pay dividends to the shareholders. However, S corporations can avoid potential double-tax consequences. Finally, the last form of business entity to be discussed here is franchising. The term franchising implies that the franchisee obtains a permission and license from the franchisor and is allowed to use their business idea.
The Essay on Small Businesses Advantages And Disadvantages
Most businesses in the United States are small businesses. There are about 23 million businesses in the United States and only about 14 thousand of them are considered medium or large. There are many reasons in creating a small business as well as advantages and disadvantages. In the coming paragraphs, I would like to share with you some of the reasons for starting a small business and the ...
The advantages of franchising are obvious, as there is no need to invent new business. The franchisee has access to ongoing support and quality training, as well as access to extensive advertising, and lower cost buying. The franchisee also faces lower risks when establishing business, as he gets easily recognizable trade mark. The franchisee also has fewer start-up problems, and his business is potentially easier to finance (Advantages and Ddisadvantages of Franchising).
However, the franchisee has to understand that the cost of franchise may reduce profit margins, and the franchisor may impose restrictions that will make business inflexible. Finally, it may be then quite difficult to sell franchise, and the other franchisees may give the brand a bad reputation. References Advantages and Disadvantages of Franchising.
(n.d.).
Retrieved December 22, 2007, from http://www.seda.org.za/content.asp?subId=488 Harroch, R. (2006, November 8).
Advantages and Disadvantages of Forming a Corporation. Retrieved December 22, 2007, from http://www.allbusiness.com/business-planning/busin ess-structures-corporations/686-1.html Harroch, R. (2006, November 16).
Advantages and Disadvantages of General Partnerships.
Retrieved December 22, 2007, from http://www.allbusiness.com/business-planning-struc tures/business/2513-1.html Sole Proprietorship Advantages and Disadvantages. (n.d.).
Retrieved December 22, 2007, from http://www.easimedia.com/Legal/Sole_Proprietor/Sol e_Proprietorship_Advantages_and_Disadvantages/.