A sole proprietorship is a business owned and run by a single individual. Unlike a corporation, which can exist as a separate entity from the owner, a sole proprietorship and the entrepreneur are one. The main advantage of a sole proprietorship is that the owner has autonomy and freedom to make business decisions without consulting anyone else. A sole proprietorship also requires less paperwork to form. As a result, it is the most affordable business for a person to start.
However, since the owner and the business are one entity, the owner can be held liable for unpaid business debts. Another disadvantage of a sole proprietorship is its dependency on the owner. If the entrepreneur dies, the business also collapses. It is also quite difficult for an entrepreneur to raise money as a sole proprietor even if they have good credit. Banks may refuse to give the owner a large loan because he or she has unlimited liability.
For this reason, a sole proprietorship cannot be successful for an extended duration. In business, there are periods of fluctuation. A sole proprietor that has lots of assets can lose everything if the business slows down. This is because the creditors will go after that person’s property. A sole proprietor has to learn to protect his or her wealth—if the business starts making money and growing, the owner should incorporate it.