Let’s now review the three common business entities: Sole Proprietorship, Partnership and Corporation. In the US, there is one additional entity called LLC or Limited Liability Companies but since this is not applicable here in Philippines, let’s skip that for the moment.
Let’s go first with the most common – Sole Proprietorship. “Sole”, as the word implies means “one” – you are the only sole owner of your business and you don’t have anyone to share your profits or losses.
Kiyosaki said that this is not the entity of business that he can recommend. As a sole proprietor, all you need do is decide the nature of your product or service, advertise, and start plying your trade. You won’t have to deal with complicated legal documents or hire expensive legal advisors.
Sometimes paperwork is still required for sole proprietorships, so make sure you check with the proper local government entities and obtain any necessary documents. For example, you may need a business license or a Mayor’s Permit. Relatively speaking, the legal matters associated with establishing a sole proprietorship are simple and straightforward, things you can tend to yourself. However, this is a very risky way to start a business.
Rich Dad Tip:
“The important word in sole proprietorship is sole. You alone are responsible and liable. Do you want your personal assets put at risk if there is a problem with your business?”
Is a sole proprietorship for you?
Sole proprietorships offer people the opportunity to run their businesses as they see fit, with minimal intrusion from the government. You are the sole owner, and decisions and profits are all yours. The sole proprietorship requires little paperwork and is the simplest business entity to operate. Moreover, if you decide to discontinue your business, no one else need be consulted: Pay off your debts, liquidate your assets, and close up shop.
A sole proprietorship is ideal for people like freelancers and consultants who want to keep their businesses small and their staffs limited. If you intend to bring in partners or you need investors, the sole proprietorship won’t work because it precludes anyone else from owning equity. Nor is the sole proprietorship ideal if you have reason to be concerned about liability. As a sole proprietor, you are personally liable for all the debts your business incurs. All of your personal assets are also at risk because you choose to operate as a sole proprietor. Liability can be a big drawback.
As they say: “Two heads are better than one”.
Source: Robert Kiyosaki’s Coaching Program