The Advantages of a Sole Proprietorship

by | Jan 14, 2022 | Small Business | 0 comments

Often, those new in business will start a sole proprietorship. This is the most accessible business type to set up and the least expensive. Versus an LLC or corporation, setting up a sole proprietorship is a lot less hassle. But, are there benefits to this type of business entity? And if so, what are those benefits? In this article, we will look at what a sole proprietorship is and examine some of the advantages that you have when establishing a sole proprietorship.

What Is A Sole Proprietorship?

First off, let’s talk about what precisely a sole proprietorship is. This business structure is the simplest one to set up, so it is so popular with those just starting. For example, freelancers tend to be sole proprietors. Some startups across a multitude of industries will gravitate to this business structure. Why? There is no federal registration involved, the fees are minimal if existent at all, and as far as taxes go, it is very straightforward when it comes to a sole proprietorship. Your personal and business taxes are the same.

Keep in mind, with a sole proprietorship. There is no difference between the business owner and the business itself; meaning, you are responsible for the business’s debts and liabilities. If someone were to sue the company, they could theoretically come after your assets, as a sole proprietorship does not offer personal protection.

The Benefits of a Sole Proprietorship

Let’s first look at a few of the benefits of having a sole proprietorship over an LLC or an S Corp. for example.

1. As mentioned, starting a sole proprietorship is extremely easy to do. If you are not particularly well-versed when it comes to business creation and the legal documents therein, then this is a good way for you to go. You may need a license or permit to launch your endeavor, but that is dependent upon your industry. So, you want to make sure and familiarize yourself with any requirements of that nature before establishing your business. Again, there is no formal registration with a sole proprietorship. And the only fees that may be involved are those associated with registering a business name. This will depend on your local governing body.

2. You have complete control of your company. In many instances with a corporation or even LLC, custody is split among two or more people, dependent on the company structure. As the name suggests, with a sole proprietorship, you run the show. You do not have to defer to another person in company decisions. And you can determine in which direction you want to take your business.

3. Filing taxes is easy when you have a sole proprietorship. Business income is your personal income, they are one and the same. A corporation has a separate taxation structure. It can make things rather difficult and time-consuming come tax time; not to mention, far costlier. Because you are the sole owner of the company, you benefit from what is called pass-through taxation. Business income and liability pass through to your personal return.

4. You get to keep your profits. Because it is a much simpler business entity, a sole proprietorship is far more cut and dry regarding profit and loss. You are the sole owner; this means you keep the money you make. You are also responsible for the business’s liabilities by the same token.

Should You Set Your Company Up as a Sole Proprietorship?

Generally speaking, when first starting a business, many people will, in fact, set that business up as a sole proprietorship. Given the above reasons and benefits, it simply makes sense. Is it the proper structure for you? This is something that you will have to determine. One thing you might do is speak with a business attorney or perhaps a business account who understands the nature of taxation when it comes to certain business types and structures. Given your company type and ultimate business goals, this can help you determine what kind of business structure might make the most sense.

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