SOLE PROPRIETORSHIP A Sole Proprietorship business is a business entity that is owned and run by one individual. It is the simplest business form under which one can operate a business. It is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. If a sole proprietor's business runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are successful, the owner will have to pay the business debts with his or her own money. There is no distinction between the individual and the business. Over 75% of businesses in the United States are Sole Proprietorships. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. If using a fictitious name (not using your complete name in the business name), it will require a fictitious name lookup which has a fee and varies by state. Sole proprietor does not work for any company or boss, just for themself, hence they are self-employed.
What is an example of a sole proprietorship or LLC? A business owned by one individual or a married couple in business alone. Examples: Grocery Store Freelance Writer Consultant Graphic Designer Local Clothing Store ADVANTAGES OF A SOLE PROPRIETORSHIP:
You are the Boss.
You keep all the profits.
You have maximum privacy.
Less paperwork to get started.
Easier processes and fewer requirements for business taxes.
Fewer registration fees.
More straightforward banking.
Simplified business ownership.
No partnerships except married couples.
Easy to change the business structure if you desire later.
DISADVANTAGES OF A SOLE PROPRIETORSHIP:
You have unlimited liability for debts.
There is no legal distinction between private and business assets.
Your capacity to raise capital is limited.
All of the responsibilities for day-to-day business decisions are yours.
Harder to take time off.
You are taxed as a single person.
LIMITED LIABILITY COMPANY A limited liability company is a business structure that gives you legal protection. It combines the benefits of the corporation and sole proprietorship business because your personal properties and assets are not at liability risk. These assets may include your house, vehicles, and saving accounts. ADVANTAGES OF LLC:
Your personal assets are protected if the business experiences bankruptcy or lawsuits.
You can pass profits and losses through your personal income without having to pay corporate taxes.
An LLC is easy to register and maintain.
You can have one or more members.
Payment is unrestricted to an LLC's members.
DISADVANTAGES OF LLC:
You must pay formation costs and annual fees.
An annual report is required or a penalty is attached.
You have more tax forms to fill out.
Your state may charge individual franchise or excise taxes.
You would file a Schedule C with your personal taxes.
You will need a registered agent who is responsible for accepting legal papers on behalf of the LLC.
Some accountants will do this at no extra fee.
Like a Sole Proprietorship, you will need to use your complete name in the business name of pay a fee to do a "Fictitious name lookup"
So, as you can see, there are advantages and disadvantages to both types of businesses. I suggest the LLC, to protect yourself. Some types of businesses carry bigger liabilities than others ~~Holly