Sole Proprietorship of Business – Sole Proprietorship

All the information contained in this post is relative to the regulations in the United States, and all references are based on Business Law principles. Everything is written in Spanish because it is aimed at our Hispanic clients.

A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and operated by an individual, with no distinction between the business and you, the owner. You are entitled to all benefits and are responsible for all debts, losses and obligations of your business.Incorporation of a sole proprietorship business

You do not have to take any formal action to incorporate a sole proprietorship. As long as you are the sole proprietorship, this status automatically comes from your business activities. In fact, you may already own one without knowing it. If you are a freelance writer, for example, you are a sole proprietor.

But, like all businesses, you need to obtain the necessary licenses and permits. Regulations vary by industry, state, and location. Use the Licenses and Permits tool to find a listing of the federal, state, and local permits, licenses, and registrations you need to operate a business.

If you decide to do business under a name other than your own, you will probably have to submit a fictitious name (also known as an assumed name, trade name, or DBA name, short for “doing business as”). You must select an original name; it cannot have been claimed by another business.

Sole Proprietor Taxes

Because you and your business are the same, the business itself is not taxed separately – sole proprietorship income is your income. You report income and/or losses and expenses with a Schedule C (in English)Download Adobe Reader to read the contents and Form 1040 (in English)Download Adobe Reader to read the standard contents. The “resulting amount” from Schedule C is transferred to your personal tax return. Your responsibility is to withhold and pay all income taxes, including estimated taxes (in English)Download Adobe Reader to read the contents and for self-employment (in English)Download Adobe Reader to read the contents. You can find more information on sole proprietorship taxes and other forms at IRS.gov.

Advantages of being a sole proprietor.

Easy and Cheap to Set Up: A sole proprietorship is the simplest and least expensive business structure to set up. Costs are minimal, and legal costs are limited to obtaining the necessary license or permits.

full control. Since 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 is easy to meet the tax reporting requirements for a sole proprietorship. Tax rates are also the lowest of business structures. Disadvantages of a sole proprietorship.

Unlimited personal liability. Since there is no legal separation between you and your business, you may be held personally liable for the debts and obligations of the business. This risk extends to any liability incurred as a result of the employee's actions.

Hard to raise money. Sole proprietors often face challenges when trying to raise funds. Since you cannot sell shares in the business, investors will not invest frequently. Banks are also hesitant when it comes to lending money to a sole proprietorship due to a perceived lack of credibility when it comes to repaying the money if the business fails.

Heavy load . The flip side of complete control is the load and pressure you can impose. You are solely ultimately responsible for the successes and failures of your business.