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Sole Proprietorship

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There are three legal forms business ownership sole proprietorship, partnership, and corporations. This video is about sole proprietorship, a sole proprietorship is a business that is owned and operated by one person and that one person is responsible for all of that business’s debts, if any debts are incurred. So, key points it is one person working on this business alone they own it, and second part that one person is responsible to repay any debts of the business incurs.

The advantages of the sole proprietorship well, biggest advantage freedom you your own boss lot of people like that. There are tax benefits to being a sole proprietor compared to be an employee. For example, employees for sole proprietors everyone pays taxes both employees and soap writers. However, employees pay more taxes than sole proprietors, here is why if we were to compare the taxes paid by sole proprietor in the business purses the taxes paid by employees we had see the following.

His income statement on the left for clay creations, what we see here is that the revenues generated started at a hundred thousand dollars. However, a business soap writer in this case is able to reduce their taxable income by deducting the cost to be the goods that they sold. As well as any expenses that they incurred in the operation of the business. So, for example wages is rank assurance so forth.

Of we end up with income before taxes or other words taxable income only thirty six thousand dollars versus employees, employee earns hundred thousand dollars, pays taxes twenty-seven thousand dollars twenty half-percent. Compare that to the sole proprietor only paid five thousand dollars on that same one hundred thousand dollars with income, you can see is a big benefit to sole proprietorship.

Sole proprietorship is very easy to start up and is very inexpensive start-up, following website approximately 20 minutes effort and about sixty dollars you can get a business, I have been running registered with Ontario. Some other disadvantages of a sole proprietorship, it is very difficult for sole proprietors to raise money with any expand the business. For example, the entrepreneur has this idea they want to get a coffee shop up and running, they approached the bank they ask me to explain their business plan to the bank and ask for longer hundred thousand dollars.

Unlikely at the bank is going to hand that sole proprietors, one hundred thousand dollars it is very risky, they might ask do you have any collateral? What is collateral? You ask, well collateral its assets that the sole proprietor owns that could be sold in order to repay the loan back to the bank.
Well, I owned house in that case the bank pay issued alone a hundred thousand dollars, because if the sole proprietors unable to repay the loan.

The house to be sold and the bank could be repaid their hundred thousand dollars, the reduces the risk, that the disadvantages sole proprietorship. One individual, has do everything there is no one to help you, your loans. Unlimited liability what is unlimited liability? Well, let’s suppose the business does fail and it has the debt two hundred thousand dollars employees be paid suppliers need to be paid and so forth. What happens? Well, there is assets that are owned by the business all the equipment and furniture so forth that of course the gets sold.

That might be worth fifty thousand dollars and the data to a thousand dollars gets reduced to 150 thousand dollars once could be value that my business has been sold off, but what is unlimited liability? Well, the creditors were owe hundred fifty thousand dollars, they want their money. Their spots are from the sole proprietor might be, Hey sorry, the business went bankrupt there is nothing left.

Well you have unlimited liability is the sole proprietor, so you personally owe hundred fifty thousand dollars that is why unlimited liability is. So, sole proprietor after the business going bankrupt might be asking themselves, where am I gonna get that under fifty thousand dollars? The answer is their personal assets their car, their savings or possibilities home.

Sole proprietorship advantages and disadvantages;

Advantages:

  • Freedom.
  • Tax benefits.
  • It simple the startup.
  • Low start-up costs.
  • Disadvantages:

  • Include it’s difficult to raise money.
  • Reliance on one person for all the skills and resources necessary to operate the business .
  • And finally importantly, unlimited liability good.
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