Basics of a Sole Proprietorship
Posted: Aug 31, 2008 10:00 PM
Updated: May 7, 2009 2:41 PM
Real Small Business: Building Your Business
Basics of a Sole Proprietorship
From the Editors of Real Small Business
Sole proprietorship is the quickest and easiest business structure to adopt. If you
don't incorporate and don't have a partner, you are automatically a sole proprietor.
Legally, you and your business are the same. As a sole proprietor your net profit is
taxed at personal income tax rates and you are personally liable for any debts or
losses you incur.
If you run a one-person business that has limited liability, you may not need to
bother with the expense and time of incorporation or any other more complex form
of organization. Sole proprietorship can also be a good choice for businesses in the
start-up phase because it does not have a lot of legal requirements.
As a sole proprietor, you may still need to register your business. Business licensing
differs from state to state. Some, like California, require nearly all businesses to
register; others have relatively few requirements. If, however, you are doing
business as a sole proprietor under a trade name rather than your personal name
("City Architects", as opposed to "John Smith, Architect"), you will likely need to get
a business certificate or register as a DBA (Doing Business As). This allows your
customers, your suppliers, the government, and anyone else your business deals
with to know who the real owner of the business is.
"Doing Business As"
You may choose to register as a DBA even if the law doesn't require you to. A DBA
can help you open a business bank account and may reassure some clients that
you have lasting power. In most cases, you register for a business certificate (DBA)
at the county clerk's office. In a few cases you register with the state or city, but a
call to the county clerk will resolve the question.
Benefits
It's the least expensive and least complicated business structure to form
Good for a trial run while you see how your business evolves
Disadvantages
Owner is personally liable for debts and losses
Offers no other type of liability protection
