A Sole Proprietorship is a type of business entity that is owned by one person making this person the “sole” owner. Such entity has no legal distinction between the owner and the business. It does not require complex state filing documents and allows individuals to report their business income and expenses on the individual’s tax returns. If you are looking to start a business without all the filing formality, you might want to consider starting a Sole Proprietorship.
Why should I start a Sole Proprietorship?
- Simple to set up – A Sole Proprietorship may be one of the most simplest entity to form when starting a business. Unlike a corporation, it does not require all the complicated state document filings.
- Cost effective – Less paperwork = less money spent!
- Sole owner and Decision Maker – You will be the sole owner of this entity. This means that you will have full control over the decisions that need to be made.
- Tax benefits – You can report the business financial on your personal tax returns, thus making filing taxes a little bit easier.
Disadvantages to a Sole Proprietorship
- Liability – The sole owner will be resposible for the debts that the business accrues. In financial troubles, creditors can personally sue you for the debt.
- Existence – Once the sole owner is deceased, the Sole Proprietorship will not be able to continue.
- Growth – Because funds are generally provided by the sole owner, it will be hard for investors to buy into the company. Sole Proprietorship also do not issue stocks.
How to start a Sole Proprietorship
1. File a Fictitious Business Name Statement with the County Clerk Recorder’s office in the county that you are doing business in.
2. Obtain business licenses and permits.
3. Apply for an EIN through the IRS.
4. Open up a bank account. It is strongly recommended that you keep business and personal finances separate.
5. Report and pay taxes.
