Agriculture Reference
In-Depth Information
Advantages of proprietorships
The legal requirements necessary to organize as a sole proprietorship are minimal. About all
that is required is an individual's desire to start a business and the purchase of a license, if
one is required for that particular kind of business. If the owner wishes to do business under
an assumed name, that is, if the business is to be conducted under a name other than that of
the owner, most states require that the assumed name be registered (this is where you will
see something like “Mike Jones dba Jones Feed and Supply” on legal documents, where dba
means “doing business as”).
Jessica Alverson is a good example. She decided to start a fl oral shop, which she wanted
to call Fragrant Floral rather than using her own name for the business. Consequently, she
registered the new name. Thereafter, those who did business with Fragrant Floral were aware
that they were really doing business with Jessica Alverson.
The
proprietorship
gives the individual owner complete control over the business,
subject only to government regulations that are applicable to all businesses of that particular
type. The owner exerts complete control over plans, programs, policies, and other manage-
ment decisions. No one else shares in this control unless the owner specifi cally delegates a
portion of the control to someone else. All profi ts and losses, all liability to creditors and
liability from other business activities are vested in the proprietor. The costs of organizing
and dissolution are typically low. The business affairs are completely secret from all outsid-
ers, except for select governmental units such as the IRS (Internal Revenue Service) and
lending institutions that supply borrowed funds.
Whenever capital is needed it is supplied by the owner from personal funds or is bor-
rowed against either the owner's business or personal assets. Personal and business assets
are not strictly separated as they are in some other business forms; therefore, if the owner as
an individual is fi nancially sound, lenders will be more likely to extend funds. A proprietor
can sell their business to whomever they wish, whenever they wish, and for whatever price
they are willing to accept. They can take on as much risk or liability as they wish, but it is
important to note that they are personally liable for whatever risk they assume.
A sole proprietor pays no income tax as a separate business entity. All income that the
business earns is taxed as personal income even though the IRS requires the fi ling of a sepa-
rate form to show business income and expenses. Since a proprietor cannot pay him/herself
a salary, the amount left over at the end of the year is treated as personal income or salary.
The proprietor may choose to keep this money in the business or use part or all of it for
personal expenditures.
The proprietorship can conduct business in any of the 50 states without special permis-
sion other than whatever licenses are required for that particular kind of business. This is a
right guaranteed by the United States Constitution, which provides that “citizens of each
state shall be entitled to the privileges and immunities of citizens of several states.” The
person who desires the lowest cost (to organize), simplest, most self-directed, most private,
and most fl exible form of agribusiness will choose the sole proprietorship.
Disadvantages of proprietorships
Perhaps the most important disadvantage of the proprietorship is the owner's personal liabil-
ity for all debts and liabilities of the business, which can extend even to the owner's personal
estate. In a proprietorship, there is no separation between business assets and personal
assets. Consequently, this form of business organization is characterized by what is called
