WHAT IS A SOLE PROPRIETORSHIP?
A sole proprietorship is a business that consists of only one person. The business and the owner are the same person.
WHAT ARE THE DISADVANTAGES OF A SOLE PROPRIETORSHIP?
The sole proprietor’s assets are at risk for all of the debts and liabilities of the business. A sole proprietor can minimize the risks with insurance, but the liabilities may exceed the insurance leaving his assets at risk.
The ability to raise capital is also very limited. A sole proprietor cannot borrow funds as an investment and remain a sole proprietor.
WHAT ARE THE ADVANTAGES OF A SOLE PROPRIETORSHIP?
There are no corporate formalities. The sole proprietorship does not have to pay the minimum franchise tax that limited liability companies and corporations are required to pay.
HOW DO I TERMINATE A SOLE PROPRIETORSHIP?
A sole proprietorship terminates when the sole proprietor dies or becomes incapacitated. There are no formal procedures for terminating a sole proprietorship.
IF I DO PLAN TO OPERATE AS A SOLE PROPRIETOR, WHAT SHOULD I DO?
1. Buy insurance.
2. You still need to apply for and obtain business permits and applicable licenses.
(For more info on permits and licenses, please visit my previous post here.)
3. You need to report the business income. You will file a Schedule C when you prepare your taxes.
4. Maintain a separate bank account for the business.
by Attorney Judith Elaine Hoover on 06/27/12
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