Choosing the Right Business Formation: Sole Proprietorship (5 of 5)
As the most common entity type in the United States, it is important to understand sole proprietorships. A sole proprietorship is a business venture run by one individual which requires no formal filings to create. There are several key benefits and drawbacks to forming your business as a proprietorship.
Simple to create. A sole proprietorship is simply an individual owning and running a business. There is no formal filing requirement to start.
Control of the business. As a sole proprietor, you maintain complete control over your business, rather than having to listen to shareholders or other partners in the venture.
Easier taxes. Sole proprietorships report business income and expenses on Schedule C which gets attached to Form 1040 of an Individual Income Tax return. (No separate returns or due dates!)
Unlimited liability. Sole proprietors are responsible for 100 percent of the business and their personal assets may be seized to satisfy debts of the business.
Difficult to expand. Without capital from partners or other shareholders, sole proprietors are limited to whatever capital the owner can bring to the business.
Succession planning. A sole proprietorship doesn’t have an unlimited life. If something happens to the owner, the company may have to cease operations.
You might think that a sole proprietorship is the right fit for you because of the easy set-up, but you should spend considerable time putting together a plan to protect your liability and to raise capital for future expansion.
And that rounds out our corner on choosing the right business formation. For help setting up your new business, give us a call today and come in for a free 45-minute consultation. Our phone number if (480) 897-7708.
James Tilton, CPA | 10/22/2014