Sole Proprietorship Business Organization Type; Meaning, Advantage & Disadvantages

Starting a business? It’s decision time. There are many ways to start a business, the primary first choice is what type of organization. Sole Proprietorship, Partnership, Limited Liability Company (LLC) or Incorporation. Each type has advantages and disadvantages, including asset protection and taxes.

What is the Meaning of Sole Proprietorship?

The Sole Proprietorship is you, the business owner, there is no other entity. This means if you’re sued your personal assets are on the line. Taxes are easy as they pass directly through you. It’s advisable to at least set up a separate business account to protect any personal savings. Never comingle your personal finances and a business enterprise. The problem is that legally there is no distinction between personal and business assets and liabilities. These assets, personal and business are subject to liabilities of either.

Sole Proprietorship Advantages

Cheaper start-Up – costs are lower to start up a Sole Proprietorship. You don’t have to register as an entity with the state; filling fees are less. Generally, this type of organization operates under DBA or ‘Doing Business As’, necessitating the filling of a Fictitious Firm Name. This offers no legal protection however.
No annual compliance. LLC’s and Corporation have to file annual reports listing managers and officers respectably.
No specified accounting method. Not a good idea, but there is not any legal requirement preventing the comingling of personal and business income and assets.
Easy tax. Simply reported on your 1040.

Sole Proprietorship Disadvantages

Exposed to personal liability. If you are sued, so is the business. If the business is sued so are you. Your personal obligation to the business is automatic under the law.
Keep separated records. Personal and business comingling make it difficult to ascertain how the business is doing. Need a loan to cover expansion or inventory? It may prove to be a futile exercise, lenders want to know how your business side is doing.

Who Are Sole Proprietorships Ideal For?

Sole Proprietorships have their place. For the retiree that builds craft items, or the author who writes fiction; a sole proprietorship would be cheaper and easier to maintain and still comply with state and local business regulations. If you don’t expect to grow your endeavor into a major player depending on substantial entity, sell only at a wholesale or manufacturers level, or you have a modest paying hobby, a sole proprietorship may satisfy your business organizational needs.

Criminal Defense, Personal Injury, Business Attorneys & More in Greater Las Vegas, Nevada

Kajioka & Associates Attorneys at Law specializes in business law. No matter whether you are a new small businesses just beginning your journey or a well established company that is growing, Kajioka and Associates, Attorneys at Law, can guide you through any business law formalities that may apply. Contact us to schedule a consultation today.

Call Now Button