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Considerations of a sole proprietorship

Starting a new business means that you need to determine what type of structure is best for it. One of these options is a sole proprietorship; however, it isn’t an appropriate business structure in some cases. Typically, this type of reserved for businesses with only one owner.

Besides only having one owner, there are some other factors to think about if you’re thinking of this structure. Typically, you won’t need any special documentation to establish a sole proprietorship. You will still need any permits or licenses that your type of business needs, and you’ll need to handle the registration of the company.

There are some risks associated with the sole proprietorship. There isn’t any division between your business and personal affairs. This means that you could lose personal assets if your company is sued and the other party wins the case. Because of this, using a sole proprietorship for a risky business isn’t usually a good idea.

Another thing to think about is taxes. Instead of having to file personal and business income taxes, you’d file your company’s taxes on your individual return. This is done by completing Schedule C when you fill out the 1040 form. One good thing about handling taxes this way is that they’re typically the lowest of any business structure.

Typically, raising money for a sole proprietorship is difficult. You might opt to choose a different structure if you plan on having to raise a considerable amount of money. You can’t sell stock in a sole proprietorship, so be sure you have other plans for keeping the company afloat in times when sales are slim.

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