Business Formation

Choosing The Correct Business Type

The advantages and disadvantages of being a sole proprietor

According to the U.S. Census Bureau, more than 70% of businesses in the United States are set up as sole proprietorships.  A sole proprietorship is a business entity that is owned by one individual and does not have any distinction between the owner of the business and the business.

Sole proprietorships do have advantages.  The biggest advantage is that there are no formal steps to set up the business.  When an individual starts doing business, the business is a sole proprietorship unless another business entity has been created.  Other advantages of a sole proprietorship include reduced cost of business, fewer regulations, and more control over the business.  With all of these advantages, the question then becomes:  Should I set up my business as a sole proprietorship?  The answer is almost always no.

The answer is no for a couple of reasons.  First, although a sole proprietorship has certain advantages, it also a major disadvantage.  In a sole proprietorship, the business owner has unlimited liability —that is, the business owner will be personally responsible for all business liabilities.

There are many different types of business entities, and it can be difficult to find the one that best fits your business needs.  Every business and business owner’s situation is unique.  If your business is currently set up as a sole proprietorship, you can meet with an experienced Arizona business attorney, such as the ones at Gunderson, Denton & Peterson, PC, who can talk with you and help you create a new business entity that will give you and your business a greater chance for success.