State the primary advantages and disadvantages of sole proprietorship and company form ?
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Advantages of a Sole Proprietorship:
Owner receives all profits.Easier to start up and lower cost because there are no required filing fees.Few documents are required at start up.Owner is free to make own decisions concerning the business operations.Owner pays only personal income taxes on the profits.
Disadvantages of a Sole Proprietorship: Owner alone is responsible for all liabilities incurred by the business; if the business does not have enough assets to pay back business debts, creditors can take the personal assets of the owner.Owner’s ability to raise capital is limited to personal funds and the funds from people who are willing to give the owner loans, which can limit the size of the business.The business may come to an end at the owner’s death, it does not continue unless transferred to heirs, but when it is transferred to family or heirs a new sole proprietorship is created.
Advantages of a LLC: Profits pass through the LLC and taxes are paid personally by the members (owners) of the company.Liability of the members is limited to the amount of their investments.Members are allowed to participate fully in management of the company.Corporations and partnerships can be LLC members.No limit on the number of members for a LLC.A LLC can have just one member.Offers a large amount of flexibility; members decide how to operate various business aspects through the operating agreement. Disadvantages of a LLC: Increased complexity in business formation; a LLC may be classified as a sole-proprietorship, a partnership, or a corporation for tax purposes.
Disadvantages of a Sole Proprietorship: Owner alone is responsible for all liabilities incurred by the business; if the business does not have enough assets to pay back business debts, creditors can take the personal assets of the owner.Owner’s ability to raise capital is limited to personal funds and the funds from people who are willing to give the owner loans, which can limit the size of the business.The business may come to an end at the owner’s death, it does not continue unless transferred to heirs, but when it is transferred to family or heirs a new sole proprietorship is created.
Advantages of a LLC: Profits pass through the LLC and taxes are paid personally by the members (owners) of the company.Liability of the members is limited to the amount of their investments.Members are allowed to participate fully in management of the company.Corporations and partnerships can be LLC members.No limit on the number of members for a LLC.A LLC can have just one member.Offers a large amount of flexibility; members decide how to operate various business aspects through the operating agreement. Disadvantages of a LLC: Increased complexity in business formation; a LLC may be classified as a sole-proprietorship, a partnership, or a corporation for tax purposes.
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