A sole proprietorship is one of the most popular businesses that you can start easily. Unlike LLC's or corporations, you don't need to register your business with the state. However, you still need to have some specific licenses or permits to start operating legally. You will be personally liable for any taxes, lawsuits, and also debts from your company.
If you want to start a sole proprietorship business, you may want to take a look at this page now. We will explain sole proprietorship and any other things that you need to know about this type of business.
What Is Sole Proprietorship?
The sole proprietorship is not a legal entity. It refers to a business owner who owns the business. He/she is responsible for any activities, debts, and any other things related to the business. A sole proprietorship business can start with the name of the owner. It can also do business under a fictitious name, for example, Nancy's Skin Care Salon.
A sole proprietorship is very popular among many people because of its easy installation procedure, simplicity, and also minimum cost. It is very easy for you to register sole proprietorship under your name for securing local licenses. Then, you can start the business immediately. Because of this simplicity, you will be able to find a lot of sole proprietorship companies that are available in the United States and any other places from all around the world now.
3 Types of Sole Proprietorship
1. Independent Contractor
This is one of the most common types of proprietorship businesses. Independent contractors are self-employed proprietors who are ready to take on any projects on a contract basis with their clients. They usually have a lot of choices when choosing which clients they want to take on.
2. Business Owner
Some business owners can also be self-employed sole proprietors. They may control their businesses that are operating under their name. However, there is more autonomy in the business compared to the business from the independent contractors. The operation of their businesses maybe a little bit complex because they have some employees or intellectual property in their companies.
3. Franchise
A franchise can be considered as a sole proprietorship. The owners of the franchise can also be sole proprietors. The franchisee will get benefits from the brand, established business model, guidance, etc. The franchisor will get benefits by getting royalties paid to them regularly. There are some rules and regulations that all sole proprietors need to know about this franchise business.
Sole Proprietorship: Pros and Cons
Pros of Sole Proprietorship Business
1. Easy startup
This is one advantage example of sole proprietorship. You don't have to prepare legal agreements before you start this business. You are not going to start a business with other partners. A sole proprietorship doesn't require you to set up a complete business structure. There is no meeting, directors, minutes, or complicated accounting for shares in your business.
2. Complete control of your business
You have complete control in managing your business. As the sole owner of your business, there are no other people who are responsible for controlling the movement of your business. You are the one who is ready to make any business decisions in your company.
3. Easy to file the tax
Sole proprietorship income taxes will be very easy to file. You can simply use the Schedule C form for your business. Then, you can add the income or loss from your proprietorship business to your other income in the personal tax return. Business losses can offset your other income in the personal tax return.
4. Minimum installation cost
You don't have to spend a lot of money on setting up a sole proprietorship business. You don't have to hire any attorneys for preparing any documents required by the federal or state agencies. There is no complicated installation procedure that you need to do for starting this proprietorship business.
Cons of Sole Proprietorship Business
Liability to obligations and debts
You are liable for any debts and obligations from your business. This is the primary disadvantage of this business. Your personal finance and your business finance will be the same. Any creditors or lawsuits can get access to your personal assets, personal accounts, and your property when your business cannot pay any bills. When you want to file a bankruptcy for your business, you need to file personal bankruptcy. It will involve all of your personal assets.
How to Start a Sole Proprietorship Business?
1. Decide the type of business you will start
This is the first thing that you have to consider before you start a proprietorship business. You can start with your hobby for starting this business. Some examples of this proprietorship business may include daycare operator, IT consultant, freelance designer, branding specialist, landscaper, fitness instructor, financial planner, business consultant, nanny, event planner, etc.
2. Talk to the Small Business Development Center
A small business development center or SBDC is ready to help you learn more about this proprietorship business and how you can start this business easily. You can reach out to the nearest SBDC for finding some steps that you need to do based on the regulations from the city, county, or state where you are going to start your business. You will learn how you can start your business legally.
3. Select a name for your business
You can use the United States Patent and Trademark Office or USPTO when you want to find the right name for your business. Your chosen name should not be trademarked by someone else. You can also consider filing your name with this office for getting a business name trademarked. If your business name is different from your name, you need to register your DBA (Doing Business As) for registering your business name.
4. Register for the business license and other permits
As a proprietorship business owner, you need to register your business license to operate legally. This license is also required when you want to open your bank account. Don't forget to get some other permits that are required for your business, for example, a health department permit (used for serving or preparing food), a federal license (used for transporting animals), a certification exam (used for becoming a professional financial advisor), and any other licenses.
Pro Tip: Start an Online Business Easily and Enjoy Earning Money from Home
With the great evolution of the e-commerce business in the past year, and its substantial growth potential in the next few years, many people consider starting a sole proprietorship e-commerce business.
However, many of them end up trapped by the inventory cost after heavily investing in products. Luckily, there is dropshipping, which doesn't require inventory, which makes it easy to start, involved with low risks, and extremely flexible cash flow. As long as you have a computer with access to the Internet, you can work from anywhere casually. Or, you can consider the dropshipping business as a side hustle that allows you to earn passive income!
As one of the best free dropshipping suppliers, SaleYee.com is always ready to partner with you to kickstart and grow your dropshipping business to earn huge profits in the most lucrative markets!
Conclusion
Once you know the sole proprietorship means and complete all required procedures for starting your business, your business can operate legally. A sole proprietorship is suitable for you who don't want to deal with any complicated procedures when you want to build your business.