Looking into starting a business? Here’s what you need to know about sole proprietorships, the simplest type of business organization you can choose.
What's a sole proprietorship?
A sole proprietorship is one of the most common business structures in the US. It’s also the easiest to form and operate. Unlike corporations or LLCs, you don’t need to register your sole proprietorship with the state because it’s not a separate legal entity.
Plus, as the sole proprietor, you have full control over the direction of your business.
Pros and cons
Depending on what you’re looking for from a business, the sole proprietorship option offers both benefits and disadvantages. A major pro is the ease, control, and flexibility that you have as the business owner.
But don’t forget that your personal assets and business finances are one and the same as a sole proprietor. This means that any losses will affect not only the business, but your own accounts as well. You also represent the business when it comes to legal situations and are responsible for all of its debts.
Taxes a sole proprietor owes
You’ll also have to file a Schedule SE with your Form 1040, which is used to calculate how much self-employment tax you owe.
Steps to start your own sole proprietorship
Ready to launch your business as a sole proprietorship? All you really need is a few essentials:
- Business name
- Business checking account
Some legal requirements include:
- Local business license
- Sales tax permits
- Relevant licenses and permits, depending on your industry and location
Once you have these tasks checked off your to-do list, you’ve started a business!
For more helpful tips, visit the SmartBiz Small Business Blog. You’ll find insights on building, growing, and managing your small business. We’ve got you covered every step of the way.
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