BASIC INFORMATION

ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIPS

STARTING YOUR SOLE PROPRIETORSHIP

TAXES AND OTHER LEGAL CONSIDERATIONS

BASIC INFORMATION

What is a Sole Proprietorship?

The Sole Proprietorship is the simplest business form under which one can operate a business. The Sole Proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

What Terms do I Need to be Familiar with in Regard to Sole Proprietorships?

To understand Sole Proprietorships, you should be familiar with the terms Fictitious Business Name and/or DBA or “Doing Business As.”

What is a Fictitious Business Name DBA?

A Fictitious Business Name of “Doing Business As” name (“DBA”) is a name under which a business or individual may conduct business without using their proper name or true corporate name.

ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIPS

What are the Advantages of A Sole Proprietorship?

• All the Profits: As the owner you are entitled to all of the profits earned by your Sole Proprietorship.
• Easy and Inexpensive to Form: A Sole Proprietorship is the simplest and least expensive business structure to establish. Costs are minimal, with legal costs limited to obtaining the necessary license or permits.
• Complete Control. Because you are the sole owner of the business, you have complete control over all decisions. You are not required to consult with anyone else when you need to make decisions or want to make changes.
• Easy Tax Preparation. Your business is not taxed separately, so it’s easy to fulfill the tax reporting requirements for a sole proprietorship. The tax rates are also generally the lowest of the business structures.

What are the Disadvantages of A Sole Proprietorship?

• Unlimited Personal Liability. Perhaps the biggest disadvantage is the potential for unlimited personal liability. Because there is no legal separation between you and your business, you can be held personally liable for the debts and obligations of the business. This risk also extends to any liabilities incurred as a result of employee actions.
• Difficult to Raise Money. Sole Proprietorships often face challenges when trying to raise money. Because you can’t sell stock in the business, investors won’t often invest. Banks are also hesitant to lend to a Sole Proprietorship because of a perceived lack of credibility when it comes to repayment if the business fails.
• Heavy Burden. The flipside of complete control is the burden and pressure it can impose. You alone are ultimately responsible for the successes and failures of the business.

For these reasons the Sole Proprietorship has grown out of favor with many individuals now opting to form single-member LLCs which, if formed and run properly, protect against personal liability and make it easier to raise money for your business venture.

STARTING YOUR SOLE PROPRIETORSHIP

How Do I Start a Sole Proprietorship?

You do not have to take any formal action to form a Sole Proprietorship. As long as you are the only owner, this status automatically comes from your business activities. However, of those who do operate as Sole Proprietorships many elect to register a Fictitious Business Name or DBA under which the day-to-day activities of the business are run.

If you would like to register a DBA for your Sole Proprietorship with your state chose from one of TTC Business Solutions’ Sole Proprietorship (DBA) Filing Services to register your business’s fictitious name.

Should I Run a Name Availability and Trademark Search before Naming the Business?

Yes. Prior to adopting and using a Fictitious Business Name or DBA for your Sole Proprietorship you should always check to make sure that the name is available with your state’s Secretary of State. You should also run a state and federal trademark search to clear use of the same as well as well as any advertising slogans, product or service names you intend to use.

TTC Business Solutions offers a Free Business Name Availability Check as well as trademark Research Report Services to determine if your Sole Proprietorship’s DBA is available.

TAXES AND OTHER LEGAL CONSIDERATIONS

How is a Sole Proprietorship Taxed?

Because you and your Sole Proprietorship are one and the same, the business itself is not taxed separately. The Sole Proprietorship income is your income.

In this regard, generally you would report income or losses and expenses with a Schedule C and the standard Form 1040. The “bottom-line amount” from Schedule C transfers to your personal tax return. It’s your responsibility to withhold and pay all income taxes, including self-employment and estimated taxes.

For more specific tax advice on the taxes to your Sole Proprietorship you may wish to consult with a licensed tax attorney or other tax professional.