The sole proprietorship is an extremely informal business structure, and as such, forming one is often how many first time business owners and accidental entrepreneurs get their start.
Pros and cons
The formation process as well as the ongoing compliance requirements for a sole proprietorship are rather relaxed. However, owners of a sole proprietorship miss out on any personal asset protection, as is offered by more formal structures.
A sole proprietorship is taxed on its owner’s personal income tax. This doesn’t mean that the owner simply reports their profits and/or losses as income (or a deduction) and then calls it a day. The fact that you are earning business income means that there are self-employment tax requirements that you must meet. As you are your own boss, you are responsible for both the employer and employee share of certain taxes
Quick process overview
There are no formal filing processes required to start a sole proprietorship, as it automatically becomes formed whenever an organization takes in their first dollar of revenue. The government will consider your company to be a sole proprietorship unless you file for a different status.
Outside of the fact that sole proprietorships in some industries may be required to obtain certain licenses or permits, there are typically no formal compliance requirements placed upon them. This makes the structure attractive to those looking to start side businesses or monetize on a hobby.
Other notable requirements
Most banks and creditors will require sole proprietorships to obtain a “Doing Business As” (DBA) in order to establish an account with them. A DBA is a fictitious name. Once successfully filed, this name can be used to legally conduct business.
Swyft can help!
Is operating as a sole proprietorship the best choice for your business? Or, do you need more information on the more formal business structures that will protect your personal assets? Contact one of our experienced agents today!