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Sole Proprietorship
A sole proprietorship is the most basic of all business legal structures. A sole proprietorship is a business that does not have the status of a corporation or limited liability company (LLC). It is the type of business which legally has no separate existence from its owner.
A business is considered a sole proprietorship by the IRS unless it is registered as a corporation, LLC, etc. No registration is required for a sole proprietorship, but if you plan on using another name or have a business name you wish to use for operating the business then you are required to register a trade name of your company.
Some of the advantages of owning a sole proprietorship are:
As a sole proprietorship tax preparation is much simpler and quicker. Business income and losses are stated on your individual income tax return. Your business and individual income are considered to be the same because you are the sole proprietor of your business. Also there are lower start-up costs for a sole proprietorship since there are usually limited resources. Lastly, the handling of money is much easier in a sole proprietorship than other legal business structures. In order to keep personal and business money separate, simply set up a separate bank account for your business.
Some of the disadvantages of owning a sole proprietorship are:
First of all, you are personally liable for all actions that the company makes and its debts. All of your personal wealth and assets are connected to your business. Secondly, compared to a corporation there is a lack of financial controls. A sole proprietorship is not required to have financial statements like a corporation or LLC is. Lastly, as a sole proprietorship it is difficult to raise capital. Investors, who could potentially invest in your company, usually look at corporations more seriously than they look at sole proprietorships.
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