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SOLE PROPRIETORSHIP
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Advantages of Owning a Sole Proprietorship
A sole proprietorship may be the right business entity for a person wanted to oown their business as the outright small business owner. This is a business that is easier to operate than other businesses because there is no state filing required to form it and therefore no upfront fees for forming a small business. The owner must be a United States citizen and they can report business profit and loss on their personal tax returns while they are not required to hold annual meetings or record meeting minutes. The sole properietorship is actually the simpest businses to form because it does not need to be a legal entity. It is a person who owns a business and responsible for all of its debts. Owners of sole proprietorships do not have to pay any unemployment taxes on themselves, but do have to on employees.
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Disadvantages of Owning a Sole Proprietorship
The owner of a sole proprietorship is required, however, to file for the necessary licenses and register the business under the business owners name for the licenses required. A disadvantage that many owners of a sole proprietorship run into is the liability of debt. If a sole proprietor faces financial trouble, the advantage of full liability, becomes their largest disadvantage because they become susceptible to lawsuits from creditors. The owner of a sole proprietorship usually signs all contracts they go into, by his or her own name. Personal and business property and funds ownership is a common challenge the owners of sole propreitorships run into, not knowing how to tell the difference between the two. Tax filings are simple, as the owner must files a Schedule C with their 1040. So if your business loses money, you can offset income other sources; if you profit, it can become a bit more complicated because of self-employment tax. If you have a tragedy, you will be fully liabile, including but not limited to, your assets, bank account, home, retirement assets and this is a scary thought for many small business owners.
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Forming a Sole Proprietorship
A large upside, as mentioned is that the owner of a sole proprietorship can form the business inexpensively and quickly. Additionally, the sole proprietor is a common business form for small business owners selling goods.