Sole proprietorships are often the results of accidental entrepreneurs and new business owners beginning a business without really intending to start a company. As soon as your enterprise has revenue, it’s a business. With a sole proprietorship, there is no state filing to begin the business. On the flip side, there is no separation between the assets of the business and those of the owner. Therefore the sole proprietor‘s personal assets can be used to satisfy business debts and liabilities.
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Advantages of sole proprietorships
Typical advantages of a sole proprietorship include:
- Ease of creation. Owners can establish a sole proprietorship instantly, easily and inexpensively.
- No state paperwork. There is no state filing required to create a sole proprietorship.
- No separate tax filing. There is no separate business income tax filing. Business income or loss is reported on the sole proprietor’s personal tax return, and any tax is paid at the individual level.
- Few ongoing formalities. Sole proprietorships face few, if any, ongoing requirements or formalities, such as state annual report or ownership meeting requirements as with C corporations, S corporations and LLCs.
Key Benefits of a Sole Proprietorship
Sole proprietorships do not face the same ongoing formalities and requirements that corporations or LLCs face. There are no annual reports to file with and fees to pay to the state, no required annual meetings, etc. However, depending on the type of business, as a sole proprietor, you will still need business licenses and permits.
Sole Proprietorship: Keep in Mind
As a sole proprietor, unless you file a DBA (doing business as) your company name will be your personal name. In order to open a bank account, most banks require sole proprietors to have a DBA name. You may also find that potential customers and vendors feel your business is more legitimate with a DBA name.
Secure your assets, gain tax breaks. Corporation owners enjoy limited liability protection, and are typically not personally responsible for business debts. So creditors can’t pursue your home or car to pay business debts. Another plus: corporations often gain tax advantages, writing off such things as health insurance premiums, savings on self-employment taxes, and life insurance.
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