The most common and simplest form of business is a sole proprietorship. Many small businesses operating in the United States are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions. The owner is also personally responsible for all debts and liabilities incurred by the business. A sole proprietor can own the business for any duration of time and sell it when he or she sees fit. As owner, a sole proprietor can even pass a business down to his or her heirs.
In this type of business, there are no specific business taxes paid by the company. The owner pays taxes on income from the business as part of his or her personal income tax payments.
Sole proprietors need to comply with licensing requirements in the states in which they're doing business, as well as local regulations and zoning ordinances. The paperwork and formalities, however, are substantially less than those of corporations, allowing sole proprietors to open a business quickly and with relative ease — from a bureaucratic standpoint. It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners who often find it difficult to attract investors.
Advantages of a Sole Proprietorship The most common and simplest form of business is a sole proprietorship. Many small businesses operating in the United States are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions. The owner is also personally responsible for all debts and liabilities incurred by the business. A sole proprietor can own the business for any duration of time and sell it when he or she sees fit. As owner, a sole proprietor can even pass a business down to his or her heirs.
In this type of business, there are no specific business taxes paid by the company. The owner pays taxes on income from the business as part of his or her personal income tax payments.
Sole proprietors need to comply with licensing requirements in the states in which they're doing business, as well as local regulations and zoning ordinances. The paperwork and formalities, however, are substantially less than those of corporations, allowing sole proprietors to open a business quickly and with relative ease — from a bureaucratic standpoint. It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners who often find it difficult to attract investors.
Advantages of a Sole Proprietorship # A sole proprietor has complete control and decision-making power over the business.
# Sale or transfer can take place at the discretion of the sole proprietor.
# No corporate tax payments.
# Minimal legal costs to forming a sole proprietorship.
# Few formal business requirements.
\
Disadvantages of a Sole Proprietorship
# The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.
# All responsibilities and business decisions fall on the shoulders of the sole proprietor.
# Investors won’t usually invest in sole proprietorships.
Note: If the business is conducted under a fictitious name, it's up to the sole proprietor to file all applicable forms under the fictitious name or under doing business as (DBA). This, however, does not mean that the business is a separate entity from a legal standpoint. The sole proprietor remains liable even if he or she is doing business under a fictitious name.
Most sole proprietors rely on loans and personal assets to initially finance their business. Some will elect to incorporate once the business has started to grow, while other business owners maintain their sole proprietorship for many years.
Information from the Iowa state secretary of state website:http://www.sos.state.ia.us/business/sole.htmlThe sole proprietorship is the oldest, most common, and simplest form of business organization. A sole proprietorship is a business entity owned and managed by one person. The sole proprietorship can be organized very informally, is not subject to much federal or state regulation, and is relatively simple to manage and control.
The prevalent characteristic of a sole proprietorship is that the owner is inseparable from the business. Because they are the same entity, the owner of a sole proprietorship has complete control over the business, its operations, and is financially and legally responsible for all debts and legal actions against the business. Another aspect of the "same entity" aspect is that taxes on a sole proprietorship are determined at the personal income tax rate of the owner. In other words, a sole proprietorship does not pay taxes separately from the owner.
A sole proprietorship is a good business organization for an individual starting a business that will remain small, does not have great exposure to liability, and does not justify the expenses of incorporating and ongoing corporate formalities.
Sole Proprietorship - Points to Consider
* Easiest type of business organization to establish. There are no formal requirements for starting a sole proprietorship
* Decision making is in direct hands of owner.
* All profits and losses of the business are reported directly to the owner's income tax return.
* The startup costs for a sole proprietorship are minimal.
* Owner has unlimited liability. Both the business and personal assets of the sole proprietor are subject to the claims of creditors.
* Because a sole proprietorship is not a separate legal entity, it usually terminates when the owner becomes disabled, retires, or dies. As a result, the sole proprietorship lacks continuity and does not have perpetual existence like other business organizations.
* It is difficult for a sole proprietorship to raise capital. Financial resources are generally limited to the owner's funds and any loans outsiders are willing to provide.
* Owner could spend unlimited amount of time responding to business needs.
Sole Proprietorship - Procedural Aspects
* There are no Iowa statutes governing the formation of a sole proprietorship.
Sole Proprietorship - Key Attributes
* Creation (minimum requirements) - No Formalities for creating a sole proprietorship.
* Profits / Losses / Distributions - Owner may use all profits and losses for business.
* Liability - Owner faces unlimited personal liability.
* Capital / Financing - All capital obtained from owner or through loans based on owner's creditworthiness.
* Duration - Usually no continuity upon disability, retirement or death of owner.
* Transfer of Ownership - Assets may be sold in entirety or in part.
* Management and Control - Owner manages and controls the company.
* Taxation - The business does not file or pay taxes.
* Reporting Requirements - None.
* Fees - None.
Source:
Advantages and Disadvantages of Sole Proprietorships Links:
1.
Understanding Sole Proprietorships 2.
http://sbinformation.about.com/od/ownership1/a/soleproprietor.htm3.
http://www.irs.gov/businesses/small/article/0,,id=98202,00.htmlNote: visit respective secretary of state websites for information related to particular state or states.
