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.
Management
If you want complete managerial control of your business, a sole proprietorship may be perfect. Sole proprietorships very rarely become the subject of an acquisition, and you never have to worry about control being transferred without your full and utter consent.
Ownership
A private partnership operates just like a sole proprietorship -- except partnerships share ownership between two or more people. If you choose a sole proprietorship, you probably want to go into business on your own without bringing a partner in later on.
Size
If you want to be free of administrative tasks and fees to register your business, a sole proprietorship may be the right option. A sole proprietorship will impose the least amount of regulatory requirements and allow you to focus on growth and profits instead of thousands of legal compliance worries a corporation faces.
Many small business owners see the decision to form an LLC as a compromise: an LLC has less restrictions and more freedom than a corporation, as well as less costs and fees. An LLC also offers limited liability protection, but in exchange you will lose some control of ownership an and control.
Because the choice of entity can have long-lasting and serious consequences, think over your decision about the type of business form you'll choose and consult with a lawyer or a business services company to discuss the advantages and disadvantages of each.
As an additional resource, click here to see a quick comparison of the sole proprietorship, LLC and corporation.
If you want complete managerial control of your business, a sole proprietorship may be perfect. Sole proprietorships very rarely become the subject of an acquisition, and you never have to worry about control being transferred without your full and utter consent.
Ownership
A private partnership operates just like a sole proprietorship -- except partnerships share ownership between two or more people. If you choose a sole proprietorship, you probably want to go into business on your own without bringing a partner in later on.
Size
If you want to be free of administrative tasks and fees to register your business, a sole proprietorship may be the right option. A sole proprietorship will impose the least amount of regulatory requirements and allow you to focus on growth and profits instead of thousands of legal compliance worries a corporation faces.
Many small business owners see the decision to form an LLC as a compromise: an LLC has less restrictions and more freedom than a corporation, as well as less costs and fees. An LLC also offers limited liability protection, but in exchange you will lose some control of ownership an and control.
Because the choice of entity can have long-lasting and serious consequences, think over your decision about the type of business form you'll choose and consult with a lawyer or a business services company to discuss the advantages and disadvantages of each.
As an additional resource, click here to see a quick comparison of the sole proprietorship, LLC and corporation.