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
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
- 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