CAREER

Entering Your Entrepreneur Era: Sole Proprietorships

Pursuing a passion or idea by starting your own business can be incredibly exciting and fulfilling. As you’re preparing to start your new chapter as a business owner, you have probably heard of a sole proprietorship. This is the simplest and most common business structure, referring to a business owned and operated by one individual. Some common examples of sole proprietorships include freelance writers creating blogs and articles for other organizations, tutors providing study assistance to individuals, and electricians who are independently contracted.

This type of business structure can assist people who want to start small with their business idea and give it a trial run before expanding. However, the most important distinction between a sole proprietorship and other business structures is the lack of legal distinction between the sole proprietorship and its owner. This means that the business owner’s personal assets will not be protected if the business fails or incurs legal action.

The Requirements

To officially begin your sole proprietorship, there may be some requirements. If you’re offering a product or service under any name other than your full legal name, you will need to register your business by filing a “doing business as” name (DBA name). If you have employees or pay excise taxes for your business, you may also need to apply for an employer identification number (EIN) with the IRS. Furthermore, depending on your specific industry, service and location, you may need to apply for federal licenses or permits. These may include an operational permit, a general business license and a seller’s permit.

The Benefits

Easy access: Depending on the state and industry, there are typically fewer forms and applications required to officially start your business, and any fees included in these processes are usually smaller than other business types.

• Complete control: As the sole owner, you’re free to make decisions on business operations and finances.
• Simple taxation: Because there’s no legal separation between the sole proprietorship and the business owner, you will report any income on your personal tax returns.
• Banking freedom: Sole proprietorships don’t require a separate bank account, so you may conduct transactions through your existing personal financial accounts.

The Drawbacks

• Credit hurdles: Sole proprietorships are typically seen as riskier investments for lenders, and a lack of credit history or unorganized financial statements can make it difficult to access business credit.
• Asset liability: As mentioned previously, sole proprietorships offer no liability protections for the business owner’s personal assets if the business fails or payments default on business credit.

If you’re still undecided on what business structure suits you best, it may be beneficial to seek professional advice. Other business owners may offer helpful insights into what worked for them, and they may have tips and tricks to provide. You may also seek help through attorneys or certified public accountants with experience working with small businesses.

Sources:

https://www.uschamber.com/co/start/strategy/sole-proprietorship-vs-llc

https://www.nerdwallet.com/business/legal/learn/advantages-of-a-sole-proprietorship

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

https://www.forbes.com/advisor/business/how-to-start-a-sole-proprietorship/