Considering starting a business? Undecided about which business structure it should have? The specialists at TRUiC explain the benefits of operating a sole proprietorship and why it might be the best option for your business.
What is a sole proprietorship?
In case you have forgotten what a sole proprietorship is (or you are still learning) here is a quick definition: Essentially you are a sole trader conducting business as a one (wo)man band. This means that you are the exclusive owner of the business. A sole proprietorship allows you to retain all profits from your business, but you are also responsible for all debts/losses to be paid.
For example: You are a piano enthusiast with years of playing and performing experience, and a pile of qualifications, under your belt. You decide to quit your day job and teach piano full time. For your first lesson with your first client, you charge $40 for the hour. After it is complete, as the sole owner, you get to keep the entire amount of $40 and you have officially become a sole proprietorship. However, should one of the strings of your piano need fixing, you alone are responsible for this fee.
- Want further information about sole proprietorships? Find out more.
Why choose to operate a sole proprietorship? Generally it is known that LLC’s and corporations come with certain advantages for managing a business. However, this is not the only business structure that permits for particular perks. Let us simplify things and break down the top 5 most important benefits that come with choosing a sole proprietorship as your business structure.
- They are easy and simple to manage
No formal application process, or registration of your business, with the federal or state governments is required. Therefore, no fees are incurred to operate a sole proprietorship. Once you have started selling goods and/or services you are viewed as a sole proprietorship. It really is as simple as that.
Remember if you decide to manage your business under a DBA (doing-business-as or trade name), there will be a small cost to register it with your state.
- Sole proprietorships simplifies taxes of the business
It is important to remember that a sole proprietorship is not its own legal entity. Rather, think of the operator of a sole proprietorship as self-employed. Consequently, there is no need to concern yourself with filing for separate taxes. So how does tax work with a sole proprietorship? When tax season comes around, all you need to do is pay both income tax and self-employment tax.
- Your business is kept private
As previously mentioned, there is no need to file any documentation/annual reports to operate a sole proprietorship. Your business’s information is not required to be available for public access (unlike for an LLC or corporation). This allows you to conduct your business without the interruptions of the government or public, keeping things running to your satisfaction.
- Only one employee is needed to make money
This is an excellent advantage as there is no need to hire countless numbers of employees to make a sole proprietorship successful. This is a bonus for those who like to work alone as it gives the owner more control of the business. (Not to mention that this will save you a pretty penny). In fact, all it really takes is one person to set the business on its profitable path.
- Paperwork and reporting is minimal to non-existent
LLC’s and corporations can be bombarded with filing the required documentation and conducting certain legally demanded meetings that come with running this type of business structure. However, sole proprietorships are not required to publish an annual report of their business with either the federal or state governments. Saving trees, time and money. Occasionally a partnership may have to file a report, but this is uncommon.