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What are the benefits and liabilities of structuring a business using the sole...

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granny54 | Student, College Freshman | (Level 1) Valedictorian

Posted July 27, 2013 at 7:47 AM via web

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What are the benefits and liabilities of structuring a business using the sole proprietorships form of business organization?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 27, 2013 at 2:54 PM (Answer #1)

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Sole proprietorships are a very common form of small business.  They have many advantages and disadvantages.

A major advantage of a sole proprietorship is that it is very flexible.  It allows the owner of the business to act as they wish without having to take into account the opinions of others.  It is also easier to get the business up and running because there is much less in the way of paperwork that must be done.  There is no need to draw up things like partnership papers or other such legal documents.

The major problem with a sole proprietorship is that it exposes the owner to unlimited liability.  The owner is liable for the debts incurred by the firm.  Serious debts incurred by the firm can even cause the owner to go bankrupt.  Another problem with a sole proprietorship is that it can be difficult to get funding if it is needed.  Banks are often reluctant to loan to such businesses because they might not seem as stable.

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