Legal Entity Engineering
When starting a company many things must be considered. Among those is the legal entity you want your company to be. There are several legal entities, each with their own advantages and disadvantages. These will be looked at in order to come to a nal decision about what legal entity Innity Engineering will be.
2 Sole Proprietorship
According to the online Entrepreneur Encyclopaedia, a sole proprietorship, by denition, is a business that legally has no separate existence from its owner. All income and losses are taxed on the individual's personal income tax return.
The sole proprietorship is the most uncomplicated form of business under which one can operate. This is not a legal entity and it simply refers to a person who …show more content…
A sole proprietorship can operate under the name of its owner or it can do business under an invented name. This invented name is simply a trade name and it does not create a legal entity separate from the sole proprietor owner.
A sole proprietorship is simple and inexpensive to set up. There is no need for a state charter.
No legal agreement or fee is required. Should a state or city licence be required, it is easily obtainable. The only other legal requirement is that the activity of the business itself is legal.
Another advantage is that the sole proprietorship allows the owner much freedom. Business decisions can be made without the need to consult a partner or board of directors. Action …show more content…
A nal advantage of the sole proprietorship is that it encourages the owner to do well, due to the fact that all the prots go to the proprietor. This serves as motivation to work hard and to make use of good judgement.
There are certain disadvantages that aect sole proprietorships, such as, the inability to raise large sums of capital. This is due to the fact that banks do not usually lend more than the
Group Assignment II August 15, 2014 1
Faculty of Engineering value of the proprietor's personal assets; a proprietor's credit rating is usually very low which leads to very high interest rates on money borrowed; owners cannot raise capital by selling an interest in the business. This disadvantage can hinder the owner from starting or expanding his/her business.
Another disadvantage is the limited lifespan of a sole proprietorship. In the case of death, bankruptcy, imprisonment or incompetence of the owner, the business is legally ended. Other businesses are often discouraged to make long-term nancial commitments to the sole propri- etorship due to its unreliable lifespan.
The unlimited liability for debts is also a major disadvantage. This means that creditors