A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated owned and operated by an individual that, without distinction between business and you, the business owner. You are entitled to all the benefits and are responsible for all debts, losses and obligations of your business.
Constitution of a sole proprietorship
You do not have to take any formal action to constitute a sole proprietorship. Whenever you are the sole owner, this condition automatically comes from your business. In fact, you may already have one without knowing it. If you are a freelance writer, for example, you’re a sole proprietor.
But, like all businesses, you need to obtain the necessary licenses and permits. Regulations vary by industry, status and location. Use the tool Licenses and permits (in English) to find a list of permits, licenses and federal, state and local records that need to operate a business.
If you decide to operate under a name different from yours, you probably have to file a fictitious name (also known as false name, trade name or DBA name, short for “doing business as”). You must select an original name, I may not have been claimed by another business.
Tax sole proprietorship
Because you and your business are the same, the business itself is not taxed separately, as a sole proprietor income is your income. You report income and / or losses and expenses with Appendix C (in English) and the standard Form 1040 (in English). The resulting “amount” of Appendix C is transferred to your personal tax return. your responsibility is to withhold and pay taxes on income, including estimated taxes (in English) and independent work (in English). You can find more information about taxes as a sole proprietorship and other forms on IRS.gov.
Advantages of being a sole proprietor.
complete control. Since you are the sole owner of the company, you have complete control over all decisions. Do not you are required to consult with anyone else when you need to make decisions or you want to make changes.
Disadvantages of a sole proprietorship.
unlimited personal liability. Since there is no legal separation between you and your business, you can be held personally liable for the debts and obligations of the company. This risk extends to any obligation incurred as a result of the employee’s actions.
Hard to raise money. Sole proprietors often face challenges in trying to raise funds. Since you can not sell shares in the business, investors will not invest often. Banks also hesitant when it comes to lending money to a sole proprietorship because of the perceived lack of credibility when it comes to repay the money if the business fails.