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Sole Proprietorships What are the advantages and disadvantages of a sole proprietorship? Sole Proprietorships A sole proprietorship is a business owned and controlled by one person. This is the oldest, simplest, and most common type of business organization. What do you think would be an advantage of owning a business by yourself? Disadvantage? Sole Proprietorships Financial resources available to one person are often limited – so sole proprietorships tend to be businesses that only require a small amount of capital. Examples include lawyers, plumbers, carpenters, hairstylists, florists, and farmers. Sole Proprietorship Advantages 1. Easy start up The business requires small amounts of capital and involve few legal considerations. Sole proprietors must observe zoning laws which specify the areas of a city or county where various types of business activities can be pursued. A city and state business license may be required. Sole Proprietorship Advantages 2. Control Sole proprietors can act quickly to correct problems or take advantage of opportunities. Control tends to lead to personal satisfaction – a successful business is more rewarding. Sole Proprietorship Advantages 3. Profit The owner keeps all of the profits. Often the main reason for starting the business. Sole Proprietorship Disadvantages 1. Unlimited liability Sole proprietors are personally responsible for all business debt – AKA liability. Sole Proprietorship Disadvantages 2. Sole responsibility The owner is responsible for all aspects of running the business. Demands on your time and energy may create frustration and reduce your sense of satisfaction and accomplishment. Sole Proprietorship Disadvantages 3. Limited growth potential Sole proprietors generally use savings or borrow small amounts of money to begin their business. Banks may require collateral – anything of value that a borrower agrees to give up if he or she is not able to repay a loan. Must have capital to expand the business. Sole Proprietorship Disadvantages 4. Lack of longevity Longevity is the length of a firm’s life or the length of time the business operates. Sole proprietorships depend on the health, commitment, and competence of one person – so they general have a shorter life span than other forms of business organization. Ticket Out The Door Name three challenges facing a sole proprietorship. Name two legal considerations. Name the main advantage for being a sole proprietor.
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