When deciding on which entity is best for you keep the following in mind:
- Your Business goals
- Business structure
- How do you want your business structured?
- Business legal vulnerabilities
- Are you entering a high-risk business that may make your business vulnerable to lawsuits?
- Tax effects
- What are the tax implications and which entity offers the best tax benefits?
- Profit/Loss projection and investment
- Start Up cost
- Ease of ending business
Sole Proprietorship
A sole proprietor is someone who owns an unincorporated business by himself or herself. (IRS 2009)
The top reason that most business chose the entity of sole proprietorship is so that they can receive full profit from the business. As a sole proprietor you are the sole owner of the business and you don't have to worry about dealing with a partner. Unlike a partnership, you are solely responsible for all decisions of the business. You do not have to worry about the petty arguments that plague some partnerships. This also means that you are also solely responsible for any debt or legal actions against your business.
In the eye of the law when you decide to be a sole proprietor you are seen as one entity with your business. There are unlimited liabilities being a sole proprietor because the law does not distinguish between you and your business. If you were sued for your business unpaid debt, not only can your business assets be liquidated to pay your debtors but your own personal assets may be liquidated. It is important that you understand your legal liabilities as a sole proprietor.
Although you are completely liable for your business debt but you also receive 100% of your business profit. As a sole proprietor you receive all the benefits from your business success and have creative control over all aspects of the business. Sole proprietorship requires minimum paperwork to complete and if necessary the business can easily be disassembled.
When thinking about what entity best fit you and your business make sure you keep your business goals in mind. Your business goals will help you figure out what entity is best for you and your business.
Exercise:
Using the below list of disadvantages and advantages for sole proprietorship, create your own advantage/disadvantage list for you and your business.
Advantages
· Receives 100% of profit (minus Uncle Sam's portion)
· Complete control over business
· Minimum set up paperwork
· Simpler taxes files
· Easier to end business
· Don't have to worry about a partner
Disadvantages
· Unlimited liabilities.
· As the sole owner you are responsible for all the start-up cost.
· Medical Premiums for Employee benefits are not taxable.
How to become a sole proprietor
You are a sole proprietor by default because as soon as you went into business for yourself you became a sole proprietor in legal terms.
If you plan to operate your business under a different name other than your own then you will have to register your business with state as a DBA (doing business as).
For example:
Sole Proprietor- Nicole Jones
Business Name- Fancy and Quick Nails
Nicole will be required to register her business name.
Registering your business name varies by secretary of state so you will have to check out your local state website to see if you have to register your trade name either on the local level, state level or through a different agency.
www.sos.(enter your state abbr.).govDo you know what business entity is best for you?
Are you a sole proprietor and why?
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