If you are just starting your own business, the sole proprietorship is the easiest structure to create. It only requires registering a business name (if you are using one other than your own), and obtaining any permits your type of business would need to operate. Many business owners choose this formation because of its simplicity regarding the formation, filing of paperwork, and taxes.
A sole proprietorship also offers the business owner complete control over the business and its finances and it can have relatively little to no start-up costs. In addition, personal assets may be co-mingled with business assets since there is no delineation between business and business owner in this formation.
A sole proprietorship is not taxed separately as in other business formations. Since the sole proprietorship consists of the business owner’s direct income, taxes are filed on a standard 1040 form including Schedule C. Schedule SE must also be filed for the purposes of calculating self-employment tax. The tax rates are considerably lower for a sole proprietorship than other business formations.
However, there are a few drawbacks when it comes to establishing your business as a sole proprietorship. Unlike corporation formation, which offers legal protection from liability, the owner of a sole proprietorship could be held personally liable in the event that the business is sued or gets into financial trouble. Additionally, due to the legal risks that a sole proprietor may face, a business owner may have difficulty finding partners with whom to do business. Depending on the type of business, these sorts of issues may not be as important. For example, a sole proprietorship is usually ideal for artists, musicians, and those who engage in providing personal services.
If you are starting your own business, contact an experienced attorney who is knowledgeable about business matters to discuss which formation and structure best suits your needs. Call Bellavia Blatt, PC at (516) 873-3000 or (631) 224-7000.