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Sole Proprietor - A sole proprietorship is a business formed by an individual. For legal and financial purposes, there is essentially no difference between a sole proprietor business and the person who owns the business. Advantages and disadvantages of the sole proprietorship are discussed below.
•Liability - The least appealing aspect of the sole proprietorship is liability. When doing business as a sole proprietor, the business owner has unlimited liability in any debts or legal suits that the business itself might have. There is a valid concern of an employee or a subcontractor completing a faulty installation while employed by the cabinet shop. Since there is no legal difference between the business and the owners assets in a sole proprietorship, if a faulty installation caused damage or personal injury, this would put the cabinet shop owners business as well as personal assets at risk of seizure by creditors or any claimants in a personal injury lawsuit. Liability of a sole proprietorship is unlimited, putting the business owner at great risk in personal finances as well as business. All personal assets of the owner of a sole proprietorship are subject to creditors for debts of the company.
•Income Taxes - In the United States, there are several different tax rates. Personal income has one of the highest tax rates in the schedule. While operating as a sole proprietorship, the owner pays personal income tax rates and forgoes any tax breaks offered for other types of businesses. With profits reaching over $600,000, taxes will be much higher and will not be subject to any tax breaks offered by state or local government. Conversely, taxable income might also be reduced by charging off costs of doing business. A 1040 plus a Schedule C listing Profit and Loss must be filed.
•Longevity and Continuity - Since a sole proprietorship is owned by one person, it can be...