One of the first decisions entrepreneurs must make is what kind of business organization they will have. A business organization is an establishment formed to carry on commercial enterprise. The most common form of business organization is the sole proprietorship. A sole proprietorship is a business owned and run by one person. About 75 percent of all businesses in the United States are sole proprietorships. However, since most sole proprietorships are small, they account for only 6 percent of all United States sales. Your local bakery, barber shop, and bicycle repair shop are most likely sole proprietorships.

     The biggest advantage of the sole proprietorship is that the owner gets to keep all profits after paying income taxes. Another advantage is that sole proprietorships are easy to start. They can usually be opened with a small amount of paperwork and legal expense. Owners also have complete control of their businesses, and can respond quickly to changes in the marketplace.

     The most important disadvantage of sole proprietorships is unlimited personal liability. Liability is the legal obligation to pay debts. If the business fails, the owner may have to sell personal property to cover those debts. Another disadvantage is that it may be hard for sole proprietors to find capital to expand their businesses. It may also be hard to find good employees. That is because many small businesses cannot afford fringe benefits, or payments to employees other than wages, such as paid vacation, retirement pay, and health insurance.