Sole proprietorship is a form of business wherein a single individual is the owner or proprietor of a business organization. He takes all the business management decisions himself and is also solely responsible for all the transactions carried on by the company. Sole proprietorship is a preferred form of business by small business owners. Even in USA, there are many small businesses which are run by individuals. This is because there are various benefits of sole proprietorship business. Some of them are listed below.
Ease in Business Commencement: The business can be very easily started if there is only one owner. The legal costs involved in such a type of business structure is very low. The paperwork and formalities are also very less. Due to this many businessmen start as sole proprietors initially and later change the business structure when their businesses grow.
Absolute Control: Decision making power lies with a single person. The proprietor has complete control over each and every aspect of the business. He has full legal and financial responsibility. Hence, there is no question of any kind of conflict arising due to difference of opinion related to business policies. This is one of the primary advantages.
Avoidance of Double Taxation: One of the main benefits is that the taxes to be paid are lesser compared to other forms of business which have business partnerships involved or in case a firm is a corporation. The reason for this is the absence of double taxation in a sole proprietorship firm. Double taxation means that the company and his owner both have to pay tax on the income generated by the business. The company pays the corporate tax and the owner pays income tax. This is not the case in sole proprietary firms. In the eyes of the law, the proprietor and his business are considered to be a single entity in case of a sole proprietorship firm. So there is no corporate tax that has to be paid. The owner only has to pay the income tax.
No Income Sharing: Another advantage is that the owner has 100% right over the income generated through the business. Thus, financial planning becomes hassle free as the income remains in the hands of a single owner and he may keep it with him or re-invest it according to his discretion. The owner may also use the business income for non business purposes or for personal use. The reason for this is that in sole proprietorship, there is no distinction between business income and personal income.
Reduced Income Tax: In case the owner has just started the business or if the business is going through a slump, the proprietor may face some business losses. In such a scenario, the owner can deduct his business losses from his total income, including the income generated from sources unrelated to his business like interest on shares and sale of property. The income tax a proprietor pays is then calculated on the basis of this reduced income.
Ease in Business Dissolution: The business can be dissolved very easily. The proprietor reserves the sole rights to sell his business to anybody. The proprietor can also transfer his business on anybody's name. There is no headache of calculating percentages of the sale proceeds to be given to different parties or conflict related to on whose name the business should be transferred. Thus, financial management becomes easy. This is one of the main advantages of sole proprietorship.
Although all businesses are different and what may be an advantage for one could prove disadvantageous to the other. In sole proprietorship, the owner has full control over the income and the decision making, but at the same time he also has unlimited liability. Unlimited liability means that in case of a business bankruptcy, the owner has to single-handedly bear all the business debts or lawsuits if any against the company. Thus, there are a few risks associated with sole proprietorship firms as well. So if you are planning on starting a business and still deciding on the best suited business structure for it, look at both the disadvantages and advantages and then arrive at a conclusion.
0 komentar:
Posting Komentar