While many entrepreneurs and small business owners are fond of the sole proprietorship as a business structure due to its simplicity, there are a variety of disadvantages and shortcomings to the sole proprietorship.  In Virginia, the process of setting up a corporation or limited liability company is so simple and inexpensive that  in many situations, it is difficult from a legal and risk management perspective to justify using the sole proprietorship to conduct a small business.

Here are a few disadvantages of the sole proprietorship structure:

1.  Sole proprietors are personally liable for all debts and obligations of the business.  As a sole proprietor, your home, furniture, and personal belongings are all at risk to satisfy liabilities that might arise in connection with your business.

2.  Related to #1, a sole proprietor’s business assets are at risk for personal debts and obligations of the sole proprietor.

3.  Some tax experts suggest that IRS audit rates for sole proprietorships are higher than for other types of business structures.

4.  Corporations and LLCs convey a greater sense of business sophistication and professionalism.

5.  Because corporations and LLCs offer perpetual life, those businesses are arguably more marketable than sole proprietorships, which cease to exist upon the death of the owner.

Starting a new business?  Perkins Law offers Virginia entrepreneurs an affordable flat fee business start-up package of services to help get your business off the ground.  E-mail or call for a free brainstorming session.