Sole Proprietorship

What is a Sole Proprietorship?

A sole proprietorship is when someone owns and runs a business by themselves. That business is unincorporated. If you decide to create an LLC instead, even by yourself, you no longer run a sole proprietorship.

This structure is the most simple and the easiest to understand. In order to form a sole proprietorship, you don’t need to take any formal action. If you remain the only owner, you are a sole proprietor as long as you are selling your services. For example, a freelance writer who works alone is a sole proprietor.

When it comes to taxes, there is no differentiation between you and your business, so you are taxed as one. You just use a Schedule C and a Standard Form 1040.

 

PROS AND CONS OF A SOLE PROPRIETORSHIP

If you’ve decided to take on this endeavor by yourself, a sole proprietorship is probably the way to go. The advantage? Complete control.
Unlike an LLC, there aren’t any complicated legal agreements involved that determine ownership. If you’re a sole proprietor, you can run the business however you want.Pros

  • Unlimited liability creditors are more likely to extend credit
  • You have complete control  of the decisions making of your business
  • Start with small amounts of capital
  • You receive all business profits
  • No corporate tax payments
  • Minimal legal costs to forming a sole proprietorship Few formal business requirements

Cons

  • Difficult for banks to approve loans
  • The owner is Personally liable for all business debts
  • Creditors can go after your personal property
  • Very hard to raise capital to grow the business since is only one person
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