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Forming a Sole Proprietorship: Pros and cons

Updated October 31, 2022
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The basics

Many first time business owners begin their journey with a sole proprietorship. This is because there is no formal filing process. The government simply considers your business to be a sole proprietorship until you file to organize under a more formal structure. A sole proprietorship is automatically formed as soon as you take in your first dollar.

Pros

  • Ease of formation

    As mentioned above, there is no formal filing procedure to establish a sole proprietorship.

  • No additional tax filings

    There is no separation between the finances of a sole proprietorship and its owner.  As a result, all of the company’s income is reflected only on the personal tax returns of the owner.  

  • Lack of continuing paperwork

    There is no administrative paperwork required to maintain a sole proprietorship.

  • Lack of compliance requirements

    Sole proprietorships are typically free from all of the ongoing compliance requirements placed on other business structures.

Cons

  • Self-employment taxes

    Even though dealing with your business’s taxes on your personal tax return may sound simple, it isn’t completely fool-proof. There are many tax obligations that self-employed business owners are responsible for.

  • Personal asset protection

    Should your business not succeed, your personal assets may be seized in order to satisfy your business’s debts. The more formal business structures offer separation, and therefore protection for your personal assets.

  • Business reputation

    Since the bar for forming a sole proprietorship is so low, some investors, partners, or clients may question the legitimacy of your business.

Swyft can help!

Do you have questions about sole proprietorships? The experienced agents at Swyft are here to assist you.  Contact us today!

Originally published on October 31, 2022, and last edited on October 31, 2022.

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