A sole proprietorship, sometimes called sole entrepreneur, single entity or simply sole proprietorship is a kind of business where there's no separation between the business entity and the individual owner. This business structure is seen more commonly in newer startup companies rather than existing ones that have been around for a while. One can say that a sole proprietorship is similar to a partnership in that it has an advisor or partner that advises and provides advice on how to manage the business. However, in a sole proprietorship the advisor is allowed to be any person who meets the requirements of the individual owners. For sole proprietorship in texas , the relationship between the owners and their advisors are very much alike to that of a partnership where they share in profits. However, unlike partnerships, there is no requirement that the advisor must share his profits with his partners. This leaves the door wide open for abuses by the sole proprietor as far as taxation is concerned. The lack of an established legal entity leaves the door wide open for opportunities for the owner to take advantage of the advisors for personal gain. One of the main disadvantages of having a sole proprietorship is the inability to make regular purchases. This means that the owner cannot be sure that he can cope with his expenditures if his needs arise in the future. His profits will not be able to support any further expansion unless he somehow manages to increase his profits sufficiently to support these requirements. If he fails to do so then his debts become the sole provider of his debt repayments leaving him with no source of income apart from the debts. Another disadvantage that comes with the sole proprietorship is the lack of flexibility in dealing with debts and other obligations. The only way to deal with them is to disperse the funds earned through the business to pay off the debts and to cover expenses. There is no room for improvisation or for the owner to meet any unexpected expenditure. Hence it is possible that the business will fall into a deep recession if the need for improvising on the revenue side is ignored. In such a situation, the owner will have to sell off some assets to raise money to provide liquidity to the business. The only options left open to him are to shut down the business and continue to live off his own savings or to consult the government for assistance. Please find out more about this topic here . Finally, the greatest disadvantage of a sole proprietorship is its nature of being a limited liability company. It limits the ability of the owners to mix personal assets with the business's assets. It also requires the closing down of the business to make any distribution of profits. The lack of control over finances results in a loss of control over the business structure leading to the formation of irregular and unprofessional working schedules. This inconvenience increases the costs and decreases the potential for successful business expansion. For small businesses this is the biggest deterrent to the growth of the enterprise. The best option for a sole proprietorship is a partnership where all the partners are legally responsible for their individual debts and losses. This provides a level of accountability that the sole proprietor is not entitled to enjoy. All the partners are made jointly responsible for the revenue and the expenses of the company, while each has a separate financial status. This provides for simplicity and accountability. Also, the other advantages of a partnership include a reduction in taxation and income levies on behalf of the partners. It is also a simple way to be classified as a legal entity by the tax authorities. Explore more about law firm here: https://en.wikipedia.org/wiki/Law_firm .
0 Comments
Leave a Reply. |
|