Last Updated on November 2, 2023 by Hina Rubab
When forming a business, the sole proprietorship option is among the three main entities that you consider besides corporations and partnerships. The distinguishing feature of a sole proprietorship is that only one person owns and runs the business. Additionally, a proprietorship features no legal separation between the business and the owner. Therefore, as the business owner in a proprietorship entity, you bear direct responsibility for every business element. You are also wholly accountable for all finances like loans, losses, profits and debts.
Sadly, many people go the sole proprietorship way without considering all the facts about this private sector entity. We have prepared this insightful piece to help you understand all the facts about proprietorship before sinking your teeth into it. So keep reading.
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It is taxed as an extension of the owner.
As an aspiring entrepreneur, you should note that the taxing bodies will tax your sole proprietorship business as an extension of the owner. As your proprietorship business grows, you can legally restructure it to become a corporation or a partnership. And with resources like angels and entrepreneurs review, you can quickly connect with exclusive private-sector deals.
The owner receives all profits.
In a sole proprietorship, the owner might carry a unique business name, and they get to receive all profits that the business makes. That’s not all. The owner also has total liability for all the debts and losses associated with the business. The IRS allowing a sole proprietor’s spouse to work in the business without the partner title is another vital exception to the entity’s rule. With this stipulation, your business can retain an extra employee and remain in the sole proprietorship status.
It is simple to register a sole proprietorship.
The sole proprietorship registration process entails two key steps, selecting a business name and filing a DBA (Doing Business As) with a local tax authority. Since there is no legal distinction between the owner and the business, a sole proprietorship is not regarded as a “legal entity.” The owner and the business are essentially the same.
It is possible to hire a workforce.
The owner of a proprietorship has the liberty of hiring independent contractors and employees. In addition, the sole proprietor can request the hired workforce to make decisions that can affect the way the business operates.
The owner holds unlimited liability for the business.
Even though a proprietorship owner can hire independent contractors and a workforce, they still hold unlimited liability for the business. And that includes being fully responsible for all the losses and, or debts that may result from the business activities. The best part is that you will also be entitled to all the business operations’ profits.
The owner has rights to the brand’s conduct.
Besides a sole proprietorship owner being entitled to all profits, they also have total rights to the brand’s conduct when forming the business and throughout its lifespan. What does that mean? As the sole proprietorship owner, you will not have to concern yourself with the intent of a board of directors, partners, or anyone else interested in the enterprise. The business maintenance and operations are entirely the outcomes of your (owner) rights.
If you want to engage yourself in a sole proprietorship business fully, the recommendation is first to understand the above-mentioned points. As a proprietorship owner, you also have several options for obtaining business financing, such as programs available through the Small Business Administration, which helps small businesses to thrive.
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