This is the easiest type of business to start, and the one that most solo entrepreneurs select to get off the ground. A sole proprietorship also requires a minimum of time to start, since the most you have to do is to register with your state government as a new enterprise by purchasing a business license. Once you have it in hand, you’re off and running.
- Opting for a sole proprietor structure makes the most sense if:
- You are running your business by yourself or with only a few employees
- You don’t plan to take on any business or financial partners
- The business you choose is a low-risk venture when it comes to the possibility of getting sued by either a customer or supplier
Your Liability
If you’re running your business from your home and clients aren’t required to visit your premises to conduct business with you, your current homeowners’ policy or a simple business policy will more than likely cover you for liability. Of course, to be safe, you should check with your insurance company to make sure.
If someone does choose to sue you as a sole proprietor, because you are personally responsible for your business, the litigant can go after your home and all of your personal property because the sole proprietor structure does not differentiate between personal and business property: the law basically views you and your business as one and the same, making all of your property—house, automobiles, furniture, monetary investments—fair game.
Along the same lines, if your business should fail, leaving outstanding debts and loans, you are personally liable to pay off those debts even though they were generated by the business. In the past, people operating sole proprietorships found it more difficult to secure significant financing for their ventures than if their businesses were partnerships or corporations. In recent years, though, as more new businesses fall under the umbrella of sole proprietorship and prove to be solid business risks, banks and finance companies alike have loosened the borrowing reins.
Pros
- A sole proprietorship is easy to start; all you need is a business license.
- You are truly your own boss, not an employee.
- You can determine your own salary and benefits package, as well as receive tax breaks for some of your personal expenses, such as a home office and travel deductions.
Cons
- You are your business; if you are sued, your personal assets are liable as well as your business property.
- All debts are your personal responsibility.
It may be harder to get approved for business loans since your personal credit is a factor in the eyes of a banker.
