Out of the many different forms for conducting business in the United States, there is one that remains consistently popular because it’s easy to set up and run: the Sole Proprietorship. But just what is it, exactly?

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How Do You Define Sole Proprietorship?

A Sole Proprietorship is a form of business where no legal distinction is made between the business itself and its owner. Here are the reasons why you may wish to operate as a sole proprietor:

  • It’s easy to start one. You become one the moment you start offering goods or services to another person, with no paperwork required.
  • Every business asset is owned by you and taxation is fairly simple.
  • You have total control over business decisions, providing flexibility.

Note that Sole Proprietorships are limited to a single owner and are restricted from issuing stock; in addition, you will still need the applicable local and state permits to operate your business.

Aren’t There Any Dangers?

Of course, the simplicity of the Sole Proprietorship is also its key disadvantage. Since no distinction is made between you and the business you operate, you have unlimited personal liability for any business debts you incur. This means that should you make a string of bad decisions or the market turns against you, you may very well end up losing your personal property, including your house. Since you are also the only person contributing capital, your initial funding options can be quite limited. Note that even if you operate for years, loans and investors will usually be hard to come by, since the inherent fragility of the proprietorship form makes it a high risk investment.

Why Should You Pick It at All?

The simplicity of a Sole Proprietorship can be a pro or a con, depending in your situation. It all depends on the business you want to set up. Generally, the ease of starting and maintaining a Sole Proprietorship makes it a good choice for small, low risk ventures where unlimited liability is unlikely to cause problems.

If you want additional liability protection, consider incorporating your business. If you have questions about your business form, or another legal question, ask a lawyer.

Get started Start Your Incorporation Answer a few questions. We'll take care of the rest.

Get started Start Your Incorporation Answer a few questions. We'll take care of the rest.