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The vast majority of small businesses often start as sole proprietorships because the owners are also the only operator. Organizing as a sole proprietorship is easy, costs nothing and makes a business easy to manage in its early stages.
Flexibility
A small businesses owner organizing as a sole proprietor benefits from the management flexibility to make all business decisions.
Risk
However, the major risk in operating as a sole proprietorship is that liability rests solely on the owner. As a result, personal assets are at risk if debt is incurred or the business is subject to legal action.
Taxes
Under a sole proprietorship, taxes and profits are all included on the personal income tax returns of the owner. Profits generated by the business are taxed as income for the owner-operator.
Costs
Organizing as a sole proprietor costs nothing and is therefore the easiest and cheapest way to form a small business without adding to start-up costs.
Strategy
A business is organized as a sole proprietorship until the expense of incorporating or forming a partnership is justified by the increase in size, complexity and value of the business.
Source:
SCORE.org: Selecting a Business Structure
SCORE.org: Types of Legal Entities
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