Problems faced by a sole proprietor and how does they overcome by it?

Answer 1

A sole proprietorship is a business with a single owner, or may be owned by a husband and wife. There are no formal requirements to start a sole proprietorship. A sole proprietorship starts automatically when a single business owner makes a business transaction. Sole proprietorships are the easiest and least expensive type of business to operate. However, there are certain legal issues that may increase a business owner's risk when operating as a sole proprietor.

LiabilityA sole proprietorship and its owner are viewed as being one and the same. Sole proprietors are held personally responsible for any lawsuits, debts and other obligations that may arise while operating the business. This means a sole proprietor could potentially lose their car, home, jewelry and other personal assets if the company gets sued, or has debts beyond the company's assets. In addition, a sole proprietor's personal creditors may make claims against a sole proprietor's business assets. Furthermore, a sole proprietor is liable for the acts of their employees, as explained on the AllBusiness website. Raising CapitalSole proprietorships may have problems when it comes to raising capital. Investors very rarely invest in sole proprietorships because there is no personal asset protection. In addition, sole proprietorships may have difficulty acquiring loans from banks and other lenders because of credibility issues. Lenders may fear issuing a loan to a sole proprietor because the loan may be defaulted on if the owner dies or becomes disabled, as explained on the Reference for Business website. Sole proprietors may have to depend on the owner's personal credit rating to obtain business loans. In other instances, sole proprietors may end up using their personal savings to finance their business. DecisionsSole proprietors are in full control of every aspect of the business. Sole proprietorships that don't have managers or other employees to provide feedback may increase the chances that bad decisions can be made. If a sole proprietor is stuck making an important business decision in an area in which expertise is lacking, the business may suffer as a result. Businesses that have multiple owners may consider multiple viewpoints before reaching a final decision. Tax ConcernsSole proprietors may be required to make estimated tax payments four times a year. If the sole proprietor fails to make their estimated tax payments, the Internal Revenue Service may penalize the sole proprietor. In addition, the sole proprietor will have to pay self employment taxes if the business earnings exceed $400. LifeA sole proprietorship will automatically end if the owner dies, decides to retire or sell the business. This is in contrast to a corporation or an LLC, which may have unlimited life in the state of Texas. When the owner of a sole proprietorship passes away, the business assets are included in the deceased owner's estate, as stated on the Reference for Business website. Furthermore, transactions that occur where the sole proprietorship adds more owners will cause the sole proprietorship to automatically dissolve.