Management: Sole Ownership Advantages and Disadvantages

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Table of Contents

Introduction
Advantages of Sole ownership
Disadvantages of Sole ownership
Conclusion
References

Introduction

Sole ownership is a form of business entity that is owned and operated by one person. Sole ownership, which is also referred to as the sole proprietorship is the operation of the business by an individual. Sole ownerships are easy to establish and run since they require low startup capital. For example, freelance writers, home/healthcare service providers, financial planners, and tutors among others are sole proprietors.

A tutor working as a sole proprietor may need skills only in a bid to start a business unlike corporations that need intense funding for capital and expertise. Moreover, even though sole ownership is the cheapest and simplest of all business setups, all responsibilities and liabilities of running the business lie on the owner. This article will analyze the advantages and disadvantages of the sole ownership form of business.

Advantages of Sole ownership

The decision-making process is quick and simple because the owner does not need to consult with other people when making changes. For instance, if the owner decides to end, expand, or move the business, s/he can do it with immediate effect unlike in limited liability companies that have to do a series of consultations with an agreement can be reached (Piper, 2014).

The level of privacy is very high because sole ownership involves one person. In addition, registering sole ownership is easy and fast and it does not require complex documentation, thus making it affordable for new businesspersons (Fox, 2014). Most sole proprietors choose businesses that flourish in both good and poor economic periods.

For instance, home health care businesses are stable since people will often require such services. The largest number of these establishments takes care of the aged and veterans. Services are mostly basic, such as preparing meals and catering for hygiene needs, and thus they cannot be avoided.

Disadvantages of Sole ownership

Individuals running sole proprietorships are mainly responsible and liable for anything happening in their businesses. This aspect implies that if the business fails to pay debts, it is faced with court cases, or an accident occurs within the business, creditors can take personal properties such as houses or any other possessions since the business entity is not separated from the owner (Piper, 2014).

For instance, Rosemary owns a small publishing company in the US. During times of favorable business prospects, she makes orders worth $ 250,000 of supplies and stock. Unexpectedly, demand for her products declines. When the payday is due and the company that supplied Rosemary demands payment and she cannot comply, as a sole owner, she is liable for this business activity. The creditor can sue her; take her business merchandise, and even personal assets.

Sole ownership has limited growth opportunities. Sole ownership is deemed undesirable if fast growth is needed. In a case when the owner dies or becomes incapacitated, the business faces the threat of discontinuity. In addition, this form of structure lacks legal separation between the owner and the business.

It is hard to raise capital through other means apart from personal savings. Getting bank loans are complicated and time-consuming for sole proprietors. Since the owner is the manager, in cases/he lacks relevant skills, the production is usually low and possibilities of closure are high (Fox, 2014).

Conclusion

Sole proprietorship arises from individuals undertaking businesses because it might not entail complex processes of registration and operation. However, this form of business is not sustainable due to a number of reasons as explained in this paper.

References

Fox, R. (2014). Tax Strategies for the Small Business Owner: Reduce Your Taxes and Fatten Your Profits. New York, NY: Springer.

Piper, M. (2014). Independent contractor, sole proprietor, and LLC taxes explained in 100 pages or less. Chicago, IL: Simple Subject, LLC.

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Management: Sole Ownership Advantages and Disadvantages

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