Sole proprietorship vs Corporation
by Reginald Brown
(Sumter, South Carolina)
South Carolina Drayton Plantation
Q: I am a business student at South University. I'm taking an accounting class right now. This is one of the questions I had for my first assignment in my class. I don't think my answer is right. I need help with the question.
You are planning to start a small business that you want to run as a sole proprietor. A friend of yours, who has been an employee of a business-consulting corporation for three years, suggests that the corporate form of ownership is more efficient from accounting perspective. Do you agree? Explain your answer with appropriate examples.
Owners of corporations and sole proprietors can both invest and reinvest in their companies. I think a corporation can grow faster than a business ran by a sole proprietor. Corporations have more owners (stockholders) that can invest large amounts of money and reinvest into the business. A sole proprietor can put money back into their business or get loans; but their business will still grow slower than a corporation.
Reginald, yes, it is generally easier to attract and raise capital with a corporation and that is the main advantage of choosing this. But corporations generally require complying with more regulations. Sole proprietorships have less. This includes having to publish financial reports and send them to various stakeholders on an annual basis.
So in summary this makes corporations less efficient from an accounting perspective (in my opinion). Research the regulations required a bit more to back up this point and you'll see what I'm talking about. Remember to add some examples as the question requires.
Hope that helps.