The Two Disadvantages of A Sole Proprietorship

The benefits of a sole proprietorship are well documented elsewhere–it is the default business characterization assumption that is made when a business springs into existence without filing any paperwork (though the transactions of the business may be subject to paperwork, such as the California business license requirement). The advantages of a sole proprietorship are the limited paperwork that makes it easier for a businessman to get started while lacking the expertise regarding structural formalities.

A sole proprietorship also provides a benefit in the form of reduced taxes (all profits and losses are reported on the sole proprietor’s own return, and therefore, any money extracted from the business only requires the payment of taxes once. This is a sharp contrast to the corporation structure, which can require an initial tax of possibly 35% on the profit earned within the corporation, and then an additional tax that occurs during dividend payment to … Read the rest of this article!