A sole proprietorship is a type of business entity in which there is one owner who operates the business. The sole proprietor, or owner, is not a distinct legal entity from the company. He is considered legally one-and-the-same as his business enterprise.
A sole proprietorship is the simplest business form, but there are many potential pitfalls with operating as a sole proprietor. An experienced attorney can help you to determine if this is the right business structure for you and can also help you to consider other alternatives. Call the Law Offices of Mike Ross today to learn more about operating your business as a sole proprietor and for help choosing the best business form.
Operating as a Sole Proprietor
When you operate as a sole proprietor, you do not create a separate legal business, unlike with a corporation. The sole proprietor can be the only business owner, unlike with a partnership where an ownership interest in the company may be shared. The sole proprietor can simply obtain any necessary licenses for the type of business he operates and can begin providing a product or service.
A sole proprietor can obtain en employer ID number (EIN) from the Internal Revenue Service (IRS) and can hire employees to work for his business. He can also do business under a different legal name by obtaining a Doing Business As (DBA). However, the business will still be solely his enterprise and he is personally responsible for the company’s actions.
The biggest benefit to operating as a sole proprietorship is that it is simple. You don’t need to file articles of incorporation to get started, nor do you have any annual filing requirements for the business. The company’s profits and losses are your personal profits and losses and you will file just one tax return. The business income (or losses) is recorded on your personal tax return along with any other sources of income and you are taxed at your personal rate.
The biggest downside to a sole proprietorship is that the business and the individual are the same in the eyes of the law. This means if the business goes into debt, the owner goes into debt along with it. If the business declares bankruptcy, it is viewed as a personal bankruptcy of the owner and he may have to have non-exempt assets sold. If the business is sued, this is just the same as its owner being sued and his personal money and assets are thus at risk.
Because of the potential problems associated with operating a sole proprietorship, you need to fully understand the risks before doing business in this way. An experienced attorney at the Law Offices of Mike Ross can help you to explore your options for how your company should be structured. Call or contact us online today to speak with a member of our legal team and learn more.
Mike Ross
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