A Sole Proprietorship is a type of business where there is no legal distinction between the individual and the business itself. The business has neither partners nor shareholders and the owner of the business can start and stop the business at their own discretion. Sole Proprietorships can be free-standing, contractors or in a permanent location.
Liability: This is a disadvantage of a Sole Proprietorship. The owner is 100% liable for the business, meaning that personal and business liability are not separated. As a Sole Proprietor if there is a law suit or if the business fails a judgment could be made that could wipe out all of the owners business and personal assets to compensate for monies owed.
Income taxes: There are both advantages and disadvantages for a Sole Proprietorship. Taxes are less complicated and are completed by utilizing a 1040 and a schedule C to report earnings and losses. However, the business owner is processing their taxes as normal income tax and it can place them in a higher tax bracket and thus be subject to a higher tax rate. One thing that helps is that the owner can itemize business expenses and claim them as deductions.
Longevity/Continuity: It is as simple to start a Sole Proprietorship as it is to stop it. There are no forms necessary to start the business. The owner simply starts doing business. To dissolve the business the owner simply needs to stop doing business, complete any open orders or contracts and pay off any debts. The simplicity of starting and stopping the business can be a huge advantage. The drawback is the business is solely operated by one individual if that individual dies the business dies with them, meaning that the business itself cannot be passed on to relatives.
Control: Autonomy, the Sole Proprietor has total control and makes all decisions in regards to the business there are no shareholders or partners to answer to. The advantage is that the owner does not have to...