Aspiring Pennsylvanian entrepreneurs may be a little overwhelmed when first tackling all of the rules and regulations associated with starting a business. One thing they may have heard is that sole proprietorships are the easiest of all business structures to manage, but just how true is that?
FindLaw does show that setting up a sole proprietorship is relatively simple. This is because it’s meant as a structure for a solo business. In other words, these are extremely small businesses only run by one person. There are no employees involved, and because of that, a sole proprietorship doesn’t need to register as a separate business entity for tax-related purposes. In some cases, you don’t even need to file paperwork in order to have a working sole proprietorship.
The New York Times, on the other hand, points out the major disadvantage of a sole proprietorship: a person is left entirely responsible for their business. Financially speaking, there aren’t any cushions to soften the blow if something goes wrong. All debts and obligations rest squarely on the shoulders of the sole proprietorship. This means that if a business goes into debt or bankruptcy, a person’s personal savings, finances, and income are fair game. Investors also tend to avoid investing in sole proprietorships, so it’s not a good choice for anyone who’s ambitious about growing their business.
Deciding what type of business structure is best will vary wildly from person to person. Those who are aiming to stay small and keep their numbers low will likely have success with a sole proprietorship.