What are the advantages and disadvantages of sole proprietorship?

What are the advantages and disadvantages of sole proprietorship?

A sole proprietorship is a prevalent form of business in many countries including Taiwan, due to it being simple and straightforward to set up. There are minimal government fees and paperwork, making it an attractive option for small and medium-sized enterprises (SMEs), as well as those who are self-employed.

One of the most prominent sole proprietor success stories is IKEA. Ingvar Kamprad owned the world-renowned furniture and homeware brand as a sole proprietor until his death in 2018. He built a global brand from a single store in Sweden. This form of business may have suited IKEA’s founder, but would it suit your business?

Let’s consider the advantages and disadvantages of sole proprietorships, how they work, and who they best serve.

What is a sole proprietorship?

A sole proprietorship is considered the easiest and simplest form of business. As the name suggests, the business is owned and operated by a sole person, and the owner and the business are considered one. Although this is the most straightforward form of business, there are considerable risks associated with it, as there is no protection of personal assets from risks and liabilities that may arise. 

Common types of businesses that operate as sole proprietors include SMEs, such as local grocery and fashion retail stores, self-employed tradespeople, freelancers, artists, and startups.

It is relatively simple and easy to register a sole proprietorship in Taiwan. See One-Person Company Quick Application.

Sole Proprietorship Advantages

  • Simple to Establish: Sole Proprietorships are known for simple and easy setting up procedures.
  • Easy Decision-Making: Given that the sole proprietor retains complete control over all business affairs, decision-making is fast and efficient, without having to seek approval from others.
  • Sole Beneficiary of Profits: Sole proprietors do not have to share profits derived from the business.
  • Ease of Termination: Terminating sole proprietorship is easier and less time-consuming than other business entities.

Be sure to do your homework when you begin to take advantage of the ease of launching a sole proprietorship. Do your research and talk to other founders with similar business models to get insightful tips and feedback. This will be useful for you to better understand the potential pitfalls and challenges you are looking at. 

As you move through the startup phase, coworking spaces like WeWork can also provide resources, giving you access to a global community of business leaders and offering flexible monthly leasing agreements. Meeting collaborators and building brand recognition happens naturally in WeWork spaces, and the ability to host meetings (or your own events) in beautifully designed workspaces is key to wooing investors and attracting new clients.

Likewise, there are an increasing number of incubators and accelerator programs in Taiwan, focusing on different areas of interest: 

AppWorks Accelerator – Catalyst for web startups from Taiwan, Southeast Asia, and elsewhere in the world.

SparkLabs Taipei – Program bringing together resources and experiences to help local startups go global.

NanKang IC Design Incubation Center – Incubation center for SMEs in the tech, IC design, and ICT-related industries.

StarFab – Focused on areas like IoT, Hardware/Software Integration, Cloud Computing, Big Data, and AI Robotics.

BE Accelerator – The largest accelerator for HealthTech and MedTech in Taiwan, devoted to medical-related issues.

Garage + – Incubation center supported by Epoch Foundation to bridge the gap between local and global startups. Backed by 30 local enterprises such as TSMC, Delta Electronics, Quanta, Wistron, Cathay, Fubon, and Shin Kong.

ABA Asia Blockchain Accelerator – Centered around providing support to blockchain entrepreneurs from Taiwan and other countries through channels like resourcing, training, business development, and talent acquisition.

Joining one of these programs is a great way to get funding and find mentorship and a support network. The best way to succeed is by learning all you can about them.

Sole Proprietorship Disadvantages

  • No Separate Legal Entity: Sole proprietorships are not separate legal entities and the owner and business are considered one and the same. Therefore, the sole proprietor is responsible for all debts and liabilities.
  • Unlimited Personal Liability: In case of debts incurred, there is no protection of personal assets (which includes your property).
  • Limited Capital: The only source of capital is the sole proprietor’s personal finances and business-generated profits. With limited working capital, business growth and expansion could be delayed or deterred.
  • Limited Life of the Business: There is no perpetual succession of sole proprietorships, which cease to exist on the death of the sole proprietor.

Financing Difficulties: Due to the risks posed by this form of business, investors are less confident and sourcing for finance becomes more difficult. Alternative financing options, like bootstrapping and crowdfunding, should be considered for startups.

“Bootstrapping a business” means relying on personal savings or company sales for funding, rather than outside investors. Whereas crowdfunding is financing a business through many small donations or investments through a platform like flyingV, zeczec, and Go Dreamer And Backer-Founder. 

  • Sale/Transfer of All or Part of the Business: You can transfer the business only by the sale of business assets.

If you want to establish a low-risk, small-scale business where you will be the only owner and have sufficient financial resources on hand, it might be easier and simpler for you to register your business as a Sole Proprietorship. However, bear in mind that your liability is unlimited and there is no protection for your personal assets.

But if you want to share the responsibilities of running a business, or if you do not have adequate financial resources, a Partnership would be the better option. 

If you’d like to learn more about our flexible co-working spaces and networking events, please visit wework.tw to connect with us today.

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