*** Index * < Previous * Next > ***
Many businesses are sole proprietorships, firms owned and operated by a single person. When a person decides to open an independent business, that person is then entirely responsible for its success or failure. Any profits go to the owner; any losses are his or her responsibility as well. If the losses prove to be greater than the investment, the individual is responsible for paying them, even if this depletes all personal assets.
One of the advantages of a sole proprietorship is that an owner can make decisions quickly and decisively without having to consult others. And an individual proprietor, by law, pays fewer taxes and at a lower rate than does a corporation.
There are disadvantages to this form of business organization, however. A sole proprietorship ends with the incapacity or death of the owner. The assets can be inherited by a person who may then become the operator, but legally the business dies with its owner. Also, since it is dependent upon the amount of money the owner has saved or can borrow, usually it does not develop into a large-scale enterprise.
In spite of its limitations, the sole proprietorship is well adapted to many kinds of small businesses and suits the temperament of many persons who like to exercise initiative and be their own bosses. Some economic contributions of small business are:
Small businesses often grow into large ones, adding to the economic vitality of the nation. Small business advocates contend that 55 percent of American technical innovation comes from small- and medium-size businesses. Certainly, many of the creative innovators in the American computer industry, including those who built successful companies in what is now known as Silicon Valley, California, started out as "tinkerers" working on hand-assembled machines in their garages. They have become part of American business lore. By any measurement, small businesses are an important part of the ferment, the creativity, and the competition that provide new strength to the American economy.
Of course, it is true that small businesses often fail. But in the United States "failure" of a small business venture does not carry with it the social stigma or opprobrium for the failed entrepreneur that it does in some countries. Often, failure of a small business venture turns out to be a valuable learning experience for the entrepreneur, who may be more successful the second or third time. Unsuccessful attempts to start a business become part of the larger process of sorting out the market and making it more efficient, according to small business experts.