Business Ownership - Sole Proprietorship And Partnership
One of the first steps you’ll need to take in establishing your home business is deciding on its legal structure. Legal structure means a lot more than you might think, it has serious consequences with regards to ownership, responsibility and liability. Unless you’re in the know and have previous experience it’s a good idea to consult an accountant or lawyer before deciding on the legal structure for your business.
The two most common legal structures to consider for your home business are sole proprietorship and partnership.
1.) Sole Proprietorship
A sole proprietorship is a single person business; it’s the most common form of small business. As a work from home entrepreneur this will likely be your legal structure of choice. The same person who owns such a business is usually responsible for day to day operations and management. The sole proprietor owns all the assets of the business and in turn receives all of the profits it generates. On the down side there is no legal distinction between the business and the owner they are a single legal entity. This means that should the business run into trouble the owner has unlimited liability.
Advantages and disadvantages of this type of ownership:
Advantages
- Easy and affordable to setup and run, not much paper work required
- The owner has all the ownership and control
- All profits generated by the business belong to the owner
- No distinction between personal and business income means far tax complications
- If things don’t work out the business is easy and inexpensive to terminate
Disadvantages
- You and your business are a single legal entity, this means you have unlimited liability. There is no difference for instance between your companies debt and your personal debt
- Loans are often very difficult to get, ideally a sole proprietor won’t use debt financing
- Because you and the business are one entity the business can’t be sold or transferred to another owner and dies when you die
Carry on reading this article on the next page
Article Tools:
