Advantages and disadvantages of a sole proprietor structure

Advantages of a sole proprietor structure include:

• • ease of establishment;
• • control over the operation and affairs of the business;
• • fewer ongoing compliance and reporting obligations;
• • relative privacy; and
• • taxation implications of a sole proprietor structure can be both an advantage and a disadvantage, depending on individual circumstances.

Disadvantages of a sole proprietor structure include:

• • unrestricted personal liability;
• • limited alternatives for succession planning, estate planning and asset protection;
• • taxation, as the business income of a sole proprietor is not distinct from personal income and has limited, if any real, tax planning and income splitting options;
• • limited, if any real, tax planning and income splitting options;
• • inapplicability to businesses with multiple owners;
• • reliance on debt financing, savings and cash flow to fund their business activities; and
• • practical difficulties can arise on sale of the business because goodwill very often attaches to the individual.

See Advantages and disadvantages of a sole proprietor structure.