After years of working for other people, you’ve decided to make a change and form your own company. Or, perhaps you’ve decided that this is something you want to do on the side?
In any case, you need to think about what type of structure your business is going to take. There are around 23 million sole proprietorships currently operating in the U.S. Why do people choose this path and are there any drawbacks?
The simpler choice
It is relatively easy to get off the ground with a sole proprietorship. Once you have your concept in mind and the relevant licenses in place (if required) you can commence operations very quickly and at a low expense. You retain full control of the business as well as any directions you wish to take in the future. Larger corporations with multiple owners and board members often get stuck in a tight spot when disputes arise. Progress may be stunted until disagreements are legally resolved, which can take several months. By going it alone, you have the potential to progress quickly and hit all of your targets on time.
Control comes at a cost
While there are many benefits to retaining full control of your company, this also means that you are solely responsible for anything that goes wrong. If you run into cash flow problems and are unable to pay contractors, then you will take on debts yourself. This means that anything you own is potentially at risk. Your home, vehicle and personal bank accounts will all be factored in if creditors come after you.
Establishing your own company can be extremely exciting, but there are some obstacles to overcome. As you consider different business structures, make sure you also take note of your legal rights.