What is a Sole Proprietor of a Business?

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When starting a business, one of the primary considerations you’ll have to make is whether to run your new entity as a sole proprietor, also known as a sole proprietorship, or as a corporation, according to the IRS. Your choice may be influenced by your current circumstances, but it’s important to understand that it can have a great impact on your life and on your business in the future.


The easiest and most common business structure is that of a sole proprietorship. What is means to do so is that you and your business are essentially one and the same. There is no corporation or board of directors associated with your company. As such, you are the sole benefactor when it comes to receiving profits, and you are responsible for all debts. As an extension of this, you are also liable for any losses or liabilities your business encounters. This can be a heavy burden for an individual to bear.


When it comes to becoming a sole proprietor, there are really no formal requirements involved in forming your business. As the only person associated with ownership of the entity, you automatically assume the title. Lone business owners and even freelancers are each considered a sole proprietorship. Under this status, you still must be sure to comply with all regulations and licensing requirements in your jurisdiction, so be sure you consult professionals such as attorneys or financial planners for consultation. For example,


As with any endeavor, there are pros and cons involved with starting a business on your own. Let’s first look at the benefits. Besides being the easiest business structure to form, it’s also the most inexpensive. The only fees involved specifically to the official formation of your business are those related to consultation costs and to fees for permits or licenses. Owning a sole proprietorship gives you absolute autonomy in decision making for your company. There are no laws involved that can force you to seek input from anymore before making any business moves. This can be quite liberating. Finally, there can be some tax advantages when you’re doing business solo. It’s much simpler to prepare your taxes, and the rates for a sole venture are less than those for other structures.


While owning a sole proprietorship has it up sides, it also comes with some negatives. The biggest deterrent for many when it comes to starting a solo biz is the fact that all liability rests on your shoulders. This can be quite risky, as you take on all liability related to both your own and any employee actions, which can add up to a hefty sum in the case of any potential legal fees. In addition, banks and private funders are often wary of investing in sole proprietors due to the associated risks. Another disadvantage to running the show on your own is the high amount of pressure that can result from being responsible for all the big decisions and whether your business is a success or a failure.

Related Resource: Tax Credits Available for Small Businesses

Keep all of this in mind when deciding whether to start your new venture as a sole proprietor or to incorporate.

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