The sole proprietorship is the most flexible and least costly legal form because:
- you may make any decision related to your business on your own and without special procedures;
- you can set up your company without paying up capital or registering any deeds;
- its management does not imply high costs;
- you are not required to draw up and submit a yearly balance sheet;
- bookkeeping and the related formalities are much easier.
At the same time, the individual firm also entails some disadvantages:
- responsibility for the debts of your company is of a personal nature;
- responsibility for the debts of your business is unlimited;
- there are no partners with whomto share and discuss decisions;
- if your profits are high, the tax scheme does not appear to be very suitable.
E.g.: Suppose that an entrepreneur responsible for his individual firm, for example, ABC of Mario Rossi, is the owner of a 250,000 euro flat, a 20,000 euro car and that his firm has debts amounting to € 220,000. If the company is unable to pay its debts, the entrepreneur's payees may decide to take over his flat.
Example: Now let us assume that the entrepreneur responsible for the Hermes di Giovanni Verdi individual firm makes a profit of 70,000 euros. The direct taxation on the profits of the Hermes company amounts to 23,370 euros. Now, had Mr. Giovanni Green set up a joint-stock company, the tax on his corporate income would be 21,980 euros, with a tax saving of 1,390 euros.
In conclusion, it is a legal form that is suitable if you want to make small investments and assume low risks.