This means that you are 100% responsible for every part of the business, including the administrative decisions and the debts that you may owe. It has many benefits apart from the sheer control it gives you over the business. You aren't accountable to anyone other than yourself.



And you don't have to seek out legal services or file a lot of paperwork like you do when you incorporate. Although many small businesses feel like they must incorporate to be an "official" business, they don't realize the additional complications that it creates. Business owners who do taxes as a sole proprietor tend to have a much easier time than those who must file forms for a corporation.

But becoming a sole proprietor has downsides as well.

Downsides To Becoming a Sole Proprietor

If you decide to become the sole proprietor of a home based business, you will put your own livelihood at risk. The money you borrow to start up the business will come from your personal credit, and therefore you will be responsible for paying it back. If the business should fail, this would mean liquidating all of your assets to pay back the lenders that helped you get on your feet. Therefore it may be harder to start larger or riskier businesses with a sole proprietorship. You can only have smaller business plans, but this may have been what you were planning anyway.

Alternative To Becoming A Sole Proprietor

You may also consider another business form such as a partnership. If you have a friend or colleague who would like to go into business with you, this could be a better choice. With sole proprietorship, you have complete control over the company. But for many people, this isn't a positive. With a partnership, you are able to discuss business decisions and get the opinion of another person. If you can provide each other with feedback, your business will take off much faster and will have a higher chance of success.

But there are downsides to being in a partnership as well. For example in a partnership you are liable for your partner's actions. So if your partner does something illegal or has some negative spending habits, you will pay the price too. You have to make sure you really trust the person you enter into a partnership with.

And you have to make sure you and your partner work well together. Since you and your partner both own 50% of the business, no one is in control. If you have a disagreement with your partner, you may find it hard to move the business forward. Of if your partner decides to leave the business and wants to cash out, it can kill the company. Likely you'll have to liquidate your business assets to pay your partner off.

Eventually, your choice will depend on how confident you are that you can control the business effectively on your own. The thought of having complete control over a business overwhelms many people, while many jump at the chance. So if your personality allows for it, a sole proprietorship will be a good choice because of the tax savings and the money you will save.