Sole proprietorships can carry significant disadvantages

Sole proprietorships can carry significant disadvantages

On Behalf of | Aug 15, 2019 | Business Formation & Planning |

Starting a business can be nerve-wracking.

For instance, the business structure that is chosen lays the foundation for not only a business operations, but also the risk business owners will assume. A business plan can have significant ramifications on investment options, and it can spell out the specific duties of each owner. With these types of critical decisions, Baton Rouge-area entrepreneurs need to exercise care.

This is especially true for those who are considering starting a sole proprietorship. This type of business has many advantages, but the disadvantages associated with it can be weighty. For advantages, a sole proprietorship is easy to create, often only requiring adequate space, permitting, and licensing. A sole proprietorship also gives a business owner complete control. He or she can dictate how the business is run, which many business owners find appealing. Tax preparation is also simplified for sole proprietors.

The disadvantages are significant, though. To start, it is often difficult to raise the money that is necessary to adequately fund a sole proprietorship. This is because sole proprietors are subjected to unlimited personal liability. This means that if the business is sued for some reason and doesn’t have the assets to cover a settlement or judgment, then a sole proprietor will have to pay out of his or her own pocket.

This is extremely risky, and banks realize that. Therefore, they are often hesitant to lend to sole proprietors. Also, many sole proprietors find themselves stressed and overwhelmed with the reality that they alone are responsible for the business’s success or failure.

As with all business formation and planning, regardless of the structure under consideration, there is a lot that must be taken into account before an appropriate decision can be made. Fortunately, skilled business law professionals stand ready to help develop a strategy that can set a business owner on the road to success.