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What are the Advantages of Sole Proprietorship?

Susan Grindstaff
Susan Grindstaff

The advantages of sole proprietorship are many, but probably the most attractive benefit for business owners is the right to run the business any way they see fit, without the need to consult with partners or shareholders. Another one of the important advantages of sole proprietorship is that it is inexpensive to set up. The legal paperwork to set up corporations and partnerships can sometimes be expensive, but in many cases, sole proprietorship can be established by simply filing tax records under that designation.

Not everyone is suited to be a sole proprietor. Some people may prefer having others available to help with decision making and to share in the risks associated with running a business. For those who prefer to act on their own, however, the advantages of sole proprietorship can outweigh the security of a business partner.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

As a sole proprietor, the owner has complete control of his or her business enterprise. He or she can decide on what products or services the business will offer, and make his or her own decisions on how to price and market the product or service. Ownership that is shared, such as with a partnership or corporation, can involve lengthy sessions devoted to decision making, which can sometimes cause the business to react slowly to market trends. Slow reaction times can sometimes result in missed opportunities. Businesses that operate as sole proprietorships can usually react quickly, streamlining the process of business adjustments.

Taxes are another reason that business owners may find sole proprietorship attractive. Most of the time, businesses that incorporate are taxed at a higher level than either sole proprietorships or partnerships, and special taxes are usually levied against corporations. As a sole proprietor, business owners do not typically have to pay any special type of business tax. They are usually just taxed on income according to their income bracket.

Income distribution is perhaps the most common reason for maintaining sole proprietorship. In many cases, especially with new businesses, there simply is not enough income to share. A small business may generate a nice income for one owner, but not enough to split with others. Of all the advantages of sole proprietorship, keeping all the income generated from the business may be the most compelling.

For those considering starting a new business, it is a good idea to carefully examine all the disadvantages and advantages of sole proprietorship before making the decision to operate alone. Having partners can offer benefits that sole proprietorship cannot. For some, having a partner to share the workload and help with finances might be necessary to get the business off the ground.

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