Advantages of Sole Proprietorships
1. The easiest and cheapest way to start a business
Though the process varies depending on the jurisdiction, establishing a sole proprietorship is generally an easy and inexpensive process, unlike forming a partnership or a corporation[1].
Compared to other business forms, there is very little paperwork a proprietor needs to file with their local authorities. As a result, proprietors do not have to wait long before they have permission to carry on a business.
The start-up fees are also low, in line with many government policies that encourage entrepreneurs to take risks and grow the economy by minimizing the friction of starting new businesses.
2. Few government rules and laws
There are very few government rules and regulations that are specific to proprietors. Sole proprietors must keep proper records, file, and pay taxes on the business income and other personal income sources.
Record keeping and tax filing obligations are generally no more complicated than maintaining records for individual tax filings. Due to the time and the effort, proprietors may wish to pay for specialized software and advisors to streamline the time spent on administration.
Government rules for larger enterprises and public companies, such as financial disclosure, require far more administration and do not apply to sole proprietorships.
3. Full management control
Proprietors control all aspects of their business, including production, sales, finance, personnel, etc. This degree of freedom is attractive to many entrepreneurs, as the venture’s success also means personal success.
To be successful, proprietors must be “good enough” at the various aspects of their business they have control over.
While some proprietors have employees and delegate some of their authority, they are ultimately accountable for all the decisions and acts of their business.
4. Flow-through of business profit
There is no legal separation between the owner and the business, so the owner gets 100% of the profits. Although all profits go to the owner, taxes are paid once, and proprietors pay taxes individually.
Proprietors must pay individual taxes on the income periodically, for example, as part of the annual individual tax filing. Tax payments may be more frequent, for example, quarterly, depending on local tax rules.