Irrespective of the size, building a successful business enterprise requires a solid foundation, careful preparation, and planning. As someone new to the business world, one of the toughest decisions you will ever face is deciding the type of business structure that best fits your business. We have noticed that many new start-ups often need help deciding which structure they want, as there are many business structures. For example, we have S corporations, Limited liability corporations (LLC), Cooperatives, Sole Proprietorships, and General partnerships.
As a new business owner, choosing a business structure that best fits your business will go a long way in determining the growth and longevity of your brand. For instance, if you are a small business owner, a sole proprietorship is what you should opt for simply because it is simple and inexpensive. It is wildly regarded as the quickest way to start your business operations. Before we detail the various advantages of this type of business structure, we must explain what a sole proprietorship is.
What is Sole Proprietorship?
Simply put, a sole proprietorship is a business structure whereby the business owner controls and bears all the losses incurred during business operations. What we are saying here, in essence, is that a sole proprietor is, as the name suggests – a one-man army. He/she typically works and makes business decisions alone and bears the loss alone. Also, a sole proprietorship doesn’t require federal registration to operate.
This particular structure favors entrepreneurs who are just starting their business journey, as well as freelancers. It favors them because the structure will save them from all kinds of paperwork, unlike the others. Plus, it will also reduce your start-up costs greatly. In addition, a sole proprietorship structure will be perfect if you already have a job and take the business as your side hustle.
Advantages of a Sole Proprietorship
As previously mentioned, a sole proprietorship is only suitable for some businesses. But notwithstanding, aside from the few advantages we have already summarised above, sole proprietorship still offers many advantages to entrepreneurs, which we will discuss in this section.
· Less paperwork
One of the key advantages of a sole proprietorship is that you will not be required to fill out much paperwork before you get your business operations up and running. This is contrary to other business structures, such as Limited Liability cooperation (LLC), where every new start-up must register its business with the state before operating.
However, this kind of thing is conditioned and depends on your state or local government. Some states permit sole proprietors to start up their businesses without any registration. Conversely, other states will ask you to obtain a business license or permit before starting to operate. Therefore, if you are trying to start a new business, check your state requirements before anything else.
· You have complete control as the owner
Another big advantage of a sole proprietorship is that, as an owner, you have complete control over the business… this also includes the decision makings, etc. Also, this structure is particularly good if you plan on entering limited liability cooperation (LLC) in the near future. That will allow you to experiment before committing fully to a Limited Liability Company (LLC).
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· There is no limit to the number of people you can hire
The number of people you can hire is unlimited in a sole proprietorship. Hiring top professionals as soon as you start your business will allow you to grow your reach and your team. However, one thing to note is that you will be responsible for the well-being of your employees and not the other way around.
· Simplified tax setup
Unlike other entities that will mandate you to file for EIN or an employer identification number From the IRS, sole proprietorship, on the other hand, will not ask you to do any of these; instead, you will use your social security number. In short, sole proprietorship brings about simple tax requirements.
Also, sole proprietors are taxed as pass-through entities. All their business income and losses will be recorded on your tax return. This means that for your business, you will not have to pay a separate tax for it.
· Fewer business fees
As we said earlier, this entity is good for new start-ups because the structure will save a lot of money, particularly on your entity registration fee. Unlike other entities that will require you to pay a certain fee annually for entity registration, sole proprietorship, on the other hand, does not have the same legal requirement. You won’t pay any fee to renew your business structure.
· A sole proprietorship allows you to change your legal structure later on
Yet another advantage of a sole proprietorship is that you can easily change your business structure if circumstances change. For example, a change in business size can mean that you want to change from sole proprietorship to limited liability cooperation. Therefore, transitioning from this business entity to another entity will be very easy.
Conclusion
If you are thinking of organizing a business, you must understand the different types of business entities available to you and the advantages and disadvantages of each. A sole proprietorship may be the simplest business organization, but there are better choices than this one.
If you’re thinking about starting a sole proprietorship, it’s important to speak with an experienced business attorney who can help you understand all of the advantages and disadvantages associated with this type of business entity. Contact Saanichton Law Group at 2505440727 today to schedule a consultation with one of our knowledgeable attorneys.
