Is Sole Proprietorship Right for You? Find Out in this Guide

Written by Chetan Dogra, CPA

When it comes to business entity, a sole proprietorship is the most straightforward legal framework for any firm.

Sole Proprietorship Overview

Here, you, the owner, are still legally a part of the company. (By default, your legal name serves as the legal business name.)

By establishing a “doing business as” (DBA) name, you can establish a business name that is distinct from your own. Furthermore, one must typically register DBAs with the county clerk or secretary of state in most states.

Owners are free to withdraw cash at any time from the company. Additionally, they must pay their estimated taxes on a quarterly basis.

Creating a sole proprietorship could be as simple as opening a business bank account. Also, certain states and localities could demand that you obtain a license or permit.

Control & Operation

Only one individual controls the entity. Moreover, all responsibility belongs to the owner.

Investments

In a sole proprietorship, outside investments are not allowed.

Transferability & Continuity

The business continues until the owner leaves the company or dies. It is possible to freely transfer assets and liabilities by selling all or some of the assets.

Legal Liability

The personal liability of a solo proprietorship is uncapped.

Taxes on Payroll and Compensation

In a sole proprietorship, self-employment taxes must be paid as a part of the quarterly estimated tax payments.

Advantages & Disadvantages of Sole Proprietorship

Advantages

Cheap to start and easy to operate
One level of net income tax
No individual tax return

Disadvantages

Uncapped personal responsibility
Just one person is permitted to own

Takeaway

If you want to be in the driver’s seat of your business and oversee everything, then Sole Proprietorship is the business model for you. You will be the sole person controlling and owning your business in this legal structure. It is easy to form too.

However, not everyone is comfortable handling all business matters on their own. For those who want to share the responsibilities with someone, a Partnership could be the right business entity. Find out about it in our next blog Best Tips on Partnership Business You’ll Find Today.