Unless the business is a professional practice, one should avoid to the largest extent, operating as a sole proprietor or a partner in a partnership, especially where such partnership is not the limited liability model.”
The reasons are numerous and varied as to why I believe that such a model may erode personal and family wealth. Take for instances the following.
i. Where the personal expenses comingle with business expenses and hence not all expenses are properly accounted for. In this instance the expenses claimed may not represent the full cost of running the business and the individual ends up paying much more in taxes than their fair share.
ii. Where assets comingle and depreciation/wear and tear may not be properly claimed thereby increasing the tax bill.
iii. A will would be required for transition management, and this may cause wealth erosion for the succeeding generation as they battle it in court for division of assets especially if the owner passes on intestate.
iv. The liability arising from operations of the business is not limited. The owner may therefore have claims arising from the business attaching to the personal assets.
v. It is difficult to raise financing as a business.
vi. There are no tax benefits.
vii. It requires personal attention, which is detrimental if absence of the individual is inevitable.
viii. Lack of diversity in strategy and formulation of ideas.
These are just a sample of the reasons that you should not operate a business as a sole proprietor. It could end up being a very lonely journey and opportunities may be lost in the process.
