Since the business relies on one person only, it is harder to raise capital on a long-term basis Smaller amounts of capital make for easier organization Unlimited liability means creditors are more likely to extend credit if neededīanks are reluctant to give loans due to higher turnover rates and usually smaller assetsĬreditors can go after your personal property to satisfy a claim if your business assets aren’t enough Personally liable for all business debts, you’re all by yourself The ProsĬomplete control and flexibility to run the business as you see fit If you’re a sole proprietor, you can run the business however you want. Unlike an LLC, there aren’t any complicated legal agreements involved that determine ownership. If you’ve decided to take on this endeavor by yourself, a sole proprietorship is probably the way to go. You just use a Schedule C and a Standard Form 1040. When it comes to taxes, there is no differentiation between you and your business, so you are taxed as one. For example, a freelancer writer who works alone is a sole proprietor. If you remain the only owner, you are a sole proprietor as long as you are selling your services. In order to form a sole proprietorship, you don’t need to take any formal action. This structure is the most simple and the easiest to understand. If you decide to create an LLC instead, even by yourself, you no longer run a sole proprietorship. These categories weren’t that meaningful before you wanted to start your own business, but now you’re scratching your head thinking about what they mean! What is a Sole Proprietorship?Ī sole proprietorship is when someone owns and runs a business by themselves. Sole proprietorship, limited liability (LLC), or corporation (S or C)? These are all ways that the government can understand what sort of business you are so they can tax you accordingly. Ok, so you’ve done some research, picked a great name, web domain and phone number to back it up, but now it’s time to get legally recognized as a business. Sole Proprietorship, Limited Liability, or Corporation? Here are just a few examples of informative state government websites to check out: They may not help you generate great company culture or offer assistance in building your product, but they will help you understand tax requirements, laws, regulations, and other fundamentals introduced here. Sure, this stuff isn’t as glamorous as a lot of the other parts of starting a business, but it’s arguably the most important part!įeeling lost? State governments have very thorough resources for helping you with the practical details of business.
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Now that we’ve gone through the building blocks of how to build a great company, it’s time to get down to the nuts and bolts. Nuts and Bolts: Nitty-Gritty Details, Incorporating, and Taxes Nitty-Gritty Details, Incorporating, and Taxes