What is a Sole Proprietorship?

Sole Proprietorship

Businesses are omnipresent in American everyday life. When forming your own business, though, there are four main types to consider, each with their own pros and cons. A sole proprietorship, partnership, corporation, and LLC (limited liability company) all have their own unique aspects that may make them helpful or less helpful to you. For this post, we will answer “What is a Sole Proprietorship?”

Advantages of a Sole Proprietorship:

A sole proprietorship is a business owned by a singular owner who has complete control over the whole business. This is useful because:

  • There are generally no costs to set up.
  • The finances of the business are kept as the owner’s finances.
  • It is simple to own and operate, as there are no conflicting interests within the business.
  • There is no double taxation for business income (however, the owner must still pay normal sales and employee-related taxes).
  • The proprietorship is legally indistinguishable from the owner, and thus there is generally no paperwork to set up a proprietorship.
  • If a proprietorship becomes too large for an owner to handle, it can be converted into a partnership, corporation, or LLC, while keeping the same name, staff, and funds.

Disadvantages of a Sole Proprietorship:

However, there are disadvantages, especially in case of lawsuits. These include:

  • The owner is personally liable for the actions of the business.
  • There is no personal immunity from lawsuits.
  • Personal assets are at risk in the event of an adverse judgement.
  • If there is a business accident, because business funds are indistinguishable from personal funds, an unlimited amount of personal funds are legally attachable to repair damages.
  • The conversion of a sole proprietorship to a corporation or LLC can be a time consuming process as it requires the separation of business funds from personal funds, which requires meticulous accounting of the owner’s finances.
  • It is impossible to sell parts of the business to make money, as there is legally no separate business entity.

These are just a few things to consider before operating as a sole proprietor. You should consult with a knowledgeable business attorney before starting your business. To speak with one of our business attorneys, please call (716) 853-1111 for a free consultation, or simply leave a comment below!

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