Sole Proprietorship Advantages and Disadvantages

Mar 2, 2021
5 minute read

You’re embarking on a new venture—that’s awesome! As a business owner, you may be wondering about sole proprietorships, particularly when starting out. Finding the key information you need can be a hassle. We’re here to help you answer those questions.

What is a sole proprietorship?

A sole proprietorship is the simplest business structure. There is a single owner of an unincorporated business who takes on all the responsibilities, including profits and debts, of that company. This is the primary difference from corporations.

Advantages of a sole proprietorship

1. Affordable and simple

The advantages of a sole proprietorship are simplicity and affordability, particularly when registering with Ownr. But, there are a few things you need to decide before you register as a sole proprietor.

2. You have freedom and flexibility

Freedom and flexibility of running your business as a sole proprietorship are included in this business structure. The process of registering as a corporation is longer and costlier, and business operations as an incorporated business are also more complicated. 

As a sole proprietor, you aren’t restricted to complicated and strict regulations. This is particularly attractive to small proprietors who don’t have the labour to continually ensure these strict guidelines are adhered to and carry them out. Sole proprietors also have all the decision-making freedom.

3. Less paperwork

No business owner wants extra paperwork, so some people prefer to register as a sole proprietorship rather than incorporate their business. With incorporation, it’s mandatory to file yearly documentation. With less paperwork also comes less overhead costs of a bookkeeper who is familiar with the legalities of incorporation and securities laws.

Simply put, less paperwork means you can spend more time developing your unique business strategy to help prevent any hiccups down the road.

4. Simpler income tax

Taxes as a sole proprietorship (also considered self-employment taxes) are a lot simpler. As a sole proprietor, there are certain tax advantages that come with small business deductions.

For a small business that uses their own home as a business base, part of housing costs, including utilities, internet, and such, can be written off. This helps reduce personal taxes and possibly even result in a tax refund when you file your personal tax return. You don’t get this advantage with corporations.

5. Say hello to lower business fees

Fees for registering as a sole proprietorship business structure are decidedly lower when compared to an incorporated business, which is among the most attractive advantages.

As a sole proprietor, you and your business are not separate legal identities and in some cases, registering your sole proprietorship business is not necessary. However, if you use a different name than your personal legal name for your proprietorship business, registration is necessary.

Many sole proprietors choose to register their business name regardless of their regional requirements to put the most professional foot forward possible.

6. Straightforward banking

Just like taxes, dealing with complicated banking is a hassle. The beautiful thing about this form of business is banking simplicity. You can choose to keep your personal chequing account as your business account, but you may kick yourself at tax time when you have to separate expenses. In this case, it’s advisable to open a separate business bank account. This can be done quite easily, inexpensively, and even online!

How’s that for straightforward?

7. Simplified ownership

A sole proprietorship is as simple as it gets in terms of business structure. It’s a single owner making the decisions, taking responsibility, and controlling all aspects of the business. For many small business owners, this is ideal as there isn’t the risk of discord between owners of corporations or partnerships. Simply put, a sole proprietor isn’t at risk of losing control.

Disadvantages of sole proprietorship

1.  No liability protection

Among the drawbacks of this type of business entity is personal liability. You are solely responsible for all the financial aspects of your business. This means all debts and any litigation fall on your shoulders. This puts your own money at risk as your personal assets are exposed. In this case, having separate business insurance is a good idea.

This is among the primary differences between sole proprietorship and incorporation tha