2. Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC?

Answer: a) They have certain advantages

b) it is wiser as the company grows

Explanation:

a) Many entrepreneurs usually start as Sole Proprietors for a myriad of reasons. The main reasons are, it is the cheapest and least complicated business to start. The investment can be low and government regulations governing them are not as right. They allow the proprietor to keep all the profit. As the 100% owner of the business, the Proprietor gets to keep all the profits made from the venture without having to share with shareholders. This is an extra incentive. Emotionally wise too there is another reason, Pride. The feeling of Pride in owning one's own business is another reason many entrepreneurs start as Sole Proprietorship.

b) As time goes on though and their venture gets successful, many entrepreneurs see it fit to convert to some other form of ownership such as an LLC or a Cooperation because there are certain advantages that follow. Some of those are, it is easier to attract investment which is needed for growth. If people see that a company has a capable group of people running it or if it is a public company, investment comes easier. There are also tax benefits for switching to such ownership structures. Most importantly perhaps is that it limits the liability of the Entrepreneur should the business go into some bad times meaning that all the losses will not be carried by the entrepreneur alone as would have been the case in a sole proprietorship.

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