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Sole Proprietorship: The Easiest Way to Structure a Business |
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Snyder
Bible Home |
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The vast majority of small-business people begin as sole proprietors, because it´s cheap, easy and fast. There's no need to draft a partnership agreement or go to the trouble and expense of registering a corporation or limited liability company (LLC) with your state regulatory agency. If you choose this legal structure, then legally speaking you and the business are the same. You can continue operating as a sole proprietor as long as you´re the only owner of the business. Establishing a sole proprietorship is cheap and relatively uncomplicated. If you´re going to conduct your business under a trade name such as Smith Furniture Store rather than John Smith, you´ll have to file an assumed name or fictitious name certificate at a local or state public office. This is so people who deal with your business will know who the real owner is. State laws and local ordinances may require that you get a business license. States differ on the amount of licensing required. In California, for example, almost all businesses need a business license, which is available to anyone for a small fee. In other states, business licenses are the exception rather than the rule. But most states require a sales tax license or permit for all retail businesses. Dealing with these routine licensing requirements generally involves little time or expense. However, many specialized businesses — such as an asbestos removal service or a restaurant that serves liquor — require additional licenses that may be harder to qualify for. From an income tax standpoint, a sole proprietorship and its owner are treated as a single entity. Business income and business losses are reported on the owner's federal tax return (Form 1040, Schedule C). If you have a business loss, you may be able to use it to offset income that you receive from other sources. As good as it sounds, there are several reasons why doing business as a sole proprietor is not appropriate for everyone. First, the owner of a sole proprietorship is personally responsible for all business debts, whereas limited liability companies and corporations normally shield their owners´ personal assets from such debts. Second, a sole proprietorship is possible only when a business is owned by one person or, in some cases, by a husband and wife. And finally, a sole proprietor and the proprietor´s business are considered to be the same legal entity for tax purposes. This can cause a tax burden. |