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Advantages And Disadvantages Of Sole Proprietorship Essay

628 words - 3 pages

Jim Dandy’s business is currently structured as a sole proprietorship. The sole proprietorship structure can possibly be very advantageous. Jim Dandy currently owns the entire business and receives all of the profits of his business. Therefore, this sole proprietorship structure is beneficial to Jim Dandy because his company consistently makes $250,000 to $300,000 net income per year. Another advantage that Jim Dandy receives as sole proprietor is full control over the entire entity and day-to-day operations. Lastly, as a sole proprietor, Jim Dandy’s profits will flow through to his personal taxable income. Jim Dandy’s is only taxed once on the total amount of his personal income plus business profits.
Although Jim Dandy’s current situation seems very advantageous, there are a few major disadvantages of the sole proprietorship structure. One disadvantage in particular is that once Jim Dandy dies, so will his business. A sole proprietorship’s life does not continue once the sole proprietor dies. Another disadvantage is that Jim Dandy is personally responsible for all of the financing for his company. Jim Dandy’s financing potential is limited to his personal funds plus any potential personal loans. Finally, there is one major disadvantage of the sole proprietorship structure. As a sole proprietor, Jim Dandy has unlimited liability, meaning that he is solely responsible for all of the debt and obligations of his business. This also means that creditors have the ability to go after Jim Dandy’s personal liabilities, if the need arises. If Jim Dandy wants to limit his liability like his cousin’s sister-in-law’s hair stylist’s niece recommended, then Jim Dandy definitely needs to change the structure of his business. Jim Dandy’s current structure as sole proprietorship has the highest amount of liability in comparison to any other entity structure.
My recommendation for the best legal structure for...

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