The law firm of Goodrich & Reely, PLLC, serves clients throughout Montana.

The benefits and downsides of sole proprietorships

On Behalf of | May 23, 2023 | Business Law

If you are thinking about starting your own business in Montana, one often overlooked option is the sole proprietorship. The sole proprietorship can be a solid option for many reasons but may not be the right fit for all businesses. Here are some of the advantages and disadvantages of a sole proprietorship.

The sole proprietorship is an unincorporated business entity operated by one person. It is generally assumed that your business is a sole proprietorship unless you take steps toward making it a partnership, LLC, or corporation.

Advantages of a sole proprietorship

Sole proprietorships are preferred by many business owners due to their simplicity and ease of formation. Some of the advantages of this business structure include:

  • Ease of formation due to minimal paperwork and limited registration fees.
  • Simplicity of tax filings and banking.
  • Easier to run the business, as there is only one person in charge.

Disadvantages of sole proprietorship

Not all businesses would benefit from a sole proprietorship business structure. Some of the disadvantages to having a sole proprietorship include:

  • Potential unlimited personal liability that attaches to all of the owner’s assets on behalf of the business.
  • Difficulty in raising capital, as banks prefer the ease of the transfer of ownership that comes with corporations and LLCs.
  • Difficulty in selling the business as a whole.

The success of your future business can depend on which business structure you choose. Before you make your final decision, you should research all potential options and consult with business law experts. Keep in mind that you can also start as a sole proprietorship and switch to another business structure later by filing the appropriate paperwork.