What type of entity? Sole proprietorship

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Sole proprietorship is a simple unincorporated business, owned and run by one individual.  There is no distinction between the individual and the business.  For example, a business owner is passionate about clock repair.  He opens a business and calls it Frank’s Clock Repair.  Frank is the only owner; he is pursuing his own passion; he uses his own social security number as the tax ID for the business; he uses his personal bank accounts for operation of the business.  Frank is entitled to all the profits of the business venture, but he is also responsible for all of the business debts, losses, and liabilities.

 

Advantages of a sole proprietorship:

 

            1.         Easy and cheap

            2.         Minimal regulatory obligations

            3.         One-level of taxation – the sole proprietor pays taxes

            4.         Easy identity

 

Disadvantages:

 

            1.         Owner liability

            2.         Limits on investors – the owner will have to create an entity to sell shares

            3.         Easy identity

 

Sole proprietorships can grow into entities.  The owner(s) then have to consider whether to exist as partnerships, limited liability companies (LLCs), or some type of corporation.  Stay tuned.

 

As ever, this blog post is for informational purposes and does not constitute legal advice.

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