This is perhaps the simplest form of an American business organization. The sole proprietorship is created at the will of the owner. There is, as is evidenced by the title, only one owner - the sole proprietor, if you may. Sole proprietorships constitute over two-thirds of all American businesses.

The advantages:

  • All the profits of the business go to the owner.
  • It has perhaps the easiest and least costly means of formation, as there are few legal forms involved.
  • This form of business provides more flexibility as the sole proprietor is free to make any decision he or she wishes concerning the business. The sole proprietor does not need to rely on the approval or input of others to make a decision.
  • The greatest advantage, perhaps, is the single taxation of the sole proprietor. All the income from the business will be reported as income on the sole proprietor's personal income tax return.

The disadvantages:

  • The major disadvantage of this business organization is the fact that the sole proprietor bears the burden of unlimited liability. The owner is responsible for all losses or liabilities incurred by the business.
  • The sole proprietorship lacks continuity on the death of the owner. The business is automatically dissolved upon the death of the owner.
  • There is also the limitation of the capital available to the sole proprietor. The owner is limited to his or her personal funds or the funds of those who are willing to make loans.

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