If you're thinking about incorporating your business or forming an LLC -- hold on! A limited liability company (LLC) or corporation may not necessarily be the best business entity for your business, as some do better as a sole proprietorship.
The sole proprietorship is really the most basic business organization in the US. Under the law, it's a pass-through entity (you report profits and losses on your personal income tax return) and there is no separation between you and the business.
Liability Issues
Sole proprietorships do not offer any personal protection against the debts and obligations of your business. You will be held responsible for outstanding debts if your business goes under, and you can be held liable for any legal actions against the business as well.
While that may sound very serious, not all businesses require this protection. If you have almost no debt and a small budget, which is usually the case with a small, local lawn care business for example, there isn't much financial risk to worry about. You may also be fine as a sole proprietorship if you're in an industry with a low risk of legal problems.
If this isn't you, and you're worried about liability, you may want to think about forming an LLC, which does offer limited liability. An LLC is more affordable and easier than a corporation to form, manage and operate.
The sole proprietorship is really the most basic business organization in the US. Under the law, it's a pass-through entity (you report profits and losses on your personal income tax return) and there is no separation between you and the business.
Liability Issues
Sole proprietorships do not offer any personal protection against the debts and obligations of your business. You will be held responsible for outstanding debts if your business goes under, and you can be held liable for any legal actions against the business as well.
While that may sound very serious, not all businesses require this protection. If you have almost no debt and a small budget, which is usually the case with a small, local lawn care business for example, there isn't much financial risk to worry about. You may also be fine as a sole proprietorship if you're in an industry with a low risk of legal problems.
If this isn't you, and you're worried about liability, you may want to think about forming an LLC, which does offer limited liability. An LLC is more affordable and easier than a corporation to form, manage and operate.