Sole Proprietorship

The most common and simplest form of business is a sole proprietorship. Many small businesses operating in the United States are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions. The owner is also personally responsible for all debts and liabilities incurred by the business. A sole proprietor can own the business for any duration of time and sell it when he or she sees fit. As owner, a sole proprietor can even pass a business down to his or her heirs.

In this type of business, there are no specific business taxes paid by the company. The owner pays taxes on income from the business as part of his or her personal income tax payments.

Most sole proprietors rely on loans and personal assets to initially finance their business. Some will elect to incorporate once the business has started to grow while other business owners maintain their sole proprietorship for many years.

Advantages of a Sole Proprietorship

The paperwork and formalities allow a sole proprietors to open a business quickly and be less costly to start a business which is attractive to many new business owners.
A sole proprietor has complete control and decision-making power over the business
Sale or transfer can take place at the discretion of the sole proprietor.
No business tax payments
Few formal business requirements

Disadvantages of a Sole Proprietorship

The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.
All responsibilities and business decisions fall on the shoulders of the sole proprietor.
Investors typically won’t invest in sole proprietorships.
Sole proprietors need to comply with licensing requirements in the states in which they are doing business as well as local regulations and zoning ordinances.
If the business is conducted under a fictitious name it is up to the sole proprietor to file all applicable forms under the fictitious name or under "doing business as" (DBA). This, however, does not mean that the business is a separate entity from a legal standpoint. The sole proprietor remains liable even if he or she is doing business under a fictitious name.

Final Word

I've briefly described the advantages and disadvantages of Sole Proprietor status. All of the rules and regulations governing Sole Proprietors, as well as recent decisions and current issues presently before the various courts today, would require a discussion of Sole Proprietors beyond the scope of this article. The information contained in this article is presented to provide a general understanding of the benefits and cautions in selecting Sole Proprietor status.

For more detailed information and specific advice for your business contact your local small business development center, your accountant or your attorney