Becoming a Sole Proprietor
- The Basics

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Are you thinking of becoming a sole proprietor to start your business? Sole proprietorships have the advantage in that they are very simple to organize…but also the disadvantage in that, due to the informal nature of this business form, you are at risk for more personal liability than other business types.

What is a sole proprietorship?

A sole proprietorship is a form of business in which one person owns all of the assets of the business. Unlike other business forms, such as corporations, a sole proprietorship usually does not exist as a separate entity from its owner, and thus the owner is personally liable for the business’s obligations and the business “entity” cannot continue beyond the life of the owner. Management is centralized, since there is only one owner, and the owner may transfer his interest, or ownership, of the business however the owner chooses. For tax purposes, all profits and losses flow through directly to the owner.

How do I become a sole proprietor?

Little formality is required to form this type of business. In many states, you merely have to file a certificate ofassumed name in the counties that the business will operate in if you plan on operating your business under a different name than your own.

Advantages:

• only one owner, centralized management
• easy to form and very few formalities to follow on an ongoing basis
• avoid double taxation