At the Piatchek Law Firm, our attorneys can assist clients in forming and managing a sole proprietorship business. A sole proprietorship is not an organization; it is simply one person doing business. Any one person who begins a business without deliberately creating another form of business automatically begins as a sole proprietorship. No formal creation is necessary. However, if a sole proprietorship will be operated under a name other than the proprietor’s, the business name should be registered with the Secretary of State by means of a fictitious registration.
While a sole proprietorship is the simplest business to form, it comes with many pros and cons, and it is certainly not the format we would typically recommend. We would be happy to meet with you to explain why.
What Is a Sole Proprietorship?
A sole proprietorship is simply a business that is owned and operated by one individual. This person, known as the sole proprietor, is solely responsible for all debts and liabilities concerning the business. Nothing legally separates the business from the individual.
Advantages and Disadvantages of Sole Proprietorships
The main disadvantage of a sole proprietorship is that there is no separation between business and personal assets. You will be responsible for all debts, contracts, and legal problems that come up during the course of running the business. The creation of an LLC or corporation is typically much more sensible. In addition, consider the following pros and cons:
- Control – When someone creates a sole proprietorship, that person owns all of the business assets and controls the entirety of the business. A sole proprietor can hire employees to manage the business, but the sole proprietor also takes on legal responsibility for the employees.
- Liability – The owner of the sole proprietorship has unlimited personal responsibility regarding business liabilities. Business creditors can target both the business’s assets as well as the owner’s personal assets to balance the business’s debt. The added risks of operating a sole proprietorship can be buffered by purchasing insurance. However, insurance packages do not cover ordinary business losses.
- Continuity and Transferability – A sole proprietorship exists until the owner chooses to dissolve the business. In the event that the owner dies, the sole proprietorship business ceases to exist and becomes a part of the owner’s estate. By selling some or all of the business’s assets, a sole proprietor can freely transfer his or her business.
- Taxes – A sole proprietorship’s income is taxed at applicable individual tax rates. The owner’s tax return will list the business income and business expenses. The owner is not required to file a separate federal income tax return, but he or she must pay self-employment tax on the business income.
The decision to run your business as a sole proprietorship can be complicated and will affect the future of your business and your money. Speak with one of our expert business attorneys to figure out if a sole proprietorship is the right move for you and your business. To get started, please contact us at 417-882-5858 to schedule your complimentary consultation.