What are the benefits and drawbacks of a sole proprietorship?

On Behalf of | Aug 24, 2021 | Business Law |

In Georgia, it can be exciting to start a business. The prospect of working for oneself gives a certain level of freedom. However, it is not without its risks. Whether the person is selling a product, providing services or is serving as a go-between for others, there are facts that should be understood from the start. Not everyone is experienced or aware of the law regarding business formation. For those who want to use the simplest method possible to form their business, a sole proprietorship might be the wisest strategy. Still, there are key facts to remember.

A sole proprietorship and how it functions

With a sole proprietorship, there are benefits and drawbacks. For people who are working for themselves, this could be the easiest path. Those who are starting the business with others should consider a corporation or a partnership. On a positive note, the sole proprietor is responsible for the business in every way. They are accorded complete control and all the profits are theirs. So too are the debts. If the owner is no longer able to oversee the business, the business does not exist. For people with a narrow skill or attribute, this protects them from having others try to take over the business and run it in the same way.

The sole proprietor is liable for the business meaning that there are no shields that separate personal and business assets. If there is a legal claim against the business, then the person could conceivably lose personal assets like a home. Taxes are reported on the person’s tax returns and this avoids needing to go through complex reporting procedures. Even with that, if the business expands, it might be preferable to change the business structure for better protection.

Having guidance can help navigate the terrain of starting a business

Regardless of what type of business a person is engaged in, there are business law issues that must be sorted through. A basic part of a business is knowing what formation is preferable. While a sole proprietorship can be useful for many, it is not appropriate for everyone. From the outset, it is beneficial to have assistance with these factors to avoid problems later. Consulting with those experienced in business and legal factors is a wise step.