What is a Sole Proprietorship?
The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business. A distinct disadvantage, however, is that the owner of this type of business remains personally liable for all the business’s debts. So, if a sole proprietor business runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are successful, the owner will have to pay the business debts with his or her own money.
The advantages of a Sole Proprietorship include:
- Easy and inexpensive to form: A sole proprietorship is the simplest and least expensive business structure to establish. They carry little, if any, ongoing formalities.
- Complete control. Because you are the sole owner of the business, you have complete control over all decisions. Owners may freely mix business or personal assets.
- Simplified tax preparation. Your business is not taxed separately, so it’s easy to fulfill the tax reporting requirements. A sole proprietor need not pay unemployment tax on himself or herself.