Sole Proprietorship

Pros and cons of being a sole proprietor

Sole Proprietor

If you're starting a business, the first aspect to consider is the basic structure. From start-up capital to future growth, there are many variables that will help you make your choice, but the effort involved at the outset will be a particularly important element—if you are one person planning to start a small business, how much time, money and expertise can you really afford to offer?

For many, a sole proprietorship is the best way to get their small business off the ground and maintain control over day-to-day issues. The simplicity of this structure and the relatively low amount of administrative and legal work it requires are just some of the advantages of sole proprietorship—learn what else to expect as a sole proprietor and what will be required to get your business started.

Definition of Sole Proprietorship

A sole proprietorship is the simplest form of business ownership because the business owner and business are one and the same from a legal standpoint. As a sole proprietor, you're the only owner and you're wholly responsible for your business: you own and manage the company on your own, you don't pay separate business taxes and you're personally liable for all business transactions, debts and legal actions taken against your company. This responsibility can put pressure on the moves you make with your business, but it also grants you freedom that doesn't come with partnership or incorporation—namely, much less paperwork, which results in easier and quicker business start-ups and sales.

For sole proprietors, the legal name of the business is often the owner's name, but you can assume another name under which to sell your products or services, instead. In many cases, an assumed name is preferable for marketing and branding purposes. If you do decide to use a business name other than your name, you'll likely have to register sole proprietorship under that name with your government agency. Which specific agency to contact depends on the particular state you operate your business from, so investigate your state requirements before setting up shop.

Should You Become a Sole Proprietor?

Since a sole proprietorship simplifies and streamlines legal and bureaucratic processes, it's a good business structure for new small businesses that plan to remain small. There are no formal requirements to start it up, and it won't involve the lofty expenses that other structures demand. On the other hand, it can be more difficult for an aspiring sole proprietor to raise start-up capital—generally, you'll have to rely on your personal funds and any loans that you can secure from friends, family and institutions. Also, it can become a risky arrangement should your business expand in the future. It is best to weigh your present needs and future plans to decide if a sole proprietorship is the right business structure for you.

Advertiser Links for Sole Proprietorship [what's this?]