For any business, it is important to consider the form of the business. One of the popular forms of business is a sole proprietorship. In this form, an individual is the owner of the business. But it might necessitate including another person that will help in the smooth running of the business. So, depending on the need of the business, you have to choose the right form of business.
Choice of the sole proprietorship
If you are planning to run your business on your own, the sole proprietorship is the suitable option. This form does not call for any legal procedure before setting up the business. Since you are the sole owner, you should be responsible for every action that takes place in the business. Without the involvement of much formality, the tax procedures can be dealt with easily. The only exception is that there is no legal relationship between the owner and the business. This is often counted as a disadvantage of this kind of business. However, this form of business will make the sole owner liable for any debts or issues that may take place in the business. Also, the owner does not have any protection of personal assets in this form of business.
Business enterprise comprising of two or more individuals
This form of business is run by two or more people. Each of them may or may not have an equal share in the business. Depending on the part of share and other factors, individuals are responsible for any debts or other issues in the business.The partnership nature should be made written by the assistance of an attorney. This will regulate the business and help resolve any misunderstanding that might arise. Even though the partners will paytaxes separately, the income and expense details are shown as a whole for the business. Factors like capital contribution or liability may differ in case of partnership and proprietorship of business.
How to decide the mode of running the business?
Every business enterprise has its own legal structure based on which should be run. When you have to decide between sole proprietorship and partnership, it will depend on the laws of the state. It will also include how the business will be operated in the state.
How management plays an important role in deciding the right form of business?
When it comes to management, the ultimate choice is whether you wish to go in business deals with one person or you wish to carry it on your own. In a sole proprietorship, your decision will be considered as the final one. But in case of a partnership, partners have to reach a combined decision to consider it as the final one. Here, if the control of business activities is important to you, it is preferable to choose sole proprietorship between the two.
Liability and credibility factors
When opting for partnership mode of business, it is like agreeing with certain rules with the other person. According to the laws of the partnership business, each partner is considered responsible for the activities of other partners in the business. For instance, if one partner opts for a business loan, every partner should ensure that the loan has been repaid. If you find it difficult to get in touch with a reliable partner, a sole proprietorship is the safest bet. It is better than regretting after going through business partnership firm process and procedure and extricating yourself suddenly.
It is often seen that business run by one individual is often considered as less credible. In case the owner works out of the business, there will be no other level of responsibility to complete the business dealings. If business credibility matters, it is better to opt for a partnership mode of business.