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The benefits and drawbacks of a sole proprietorship

The benefits and drawbacks of a sole proprietorship

| Jul 8, 2020 | Uncategorized |

When Texans are considering starting a business, one of the biggest obstacles they tend to face is what type of structure they can and should use. Not everyone who has an idea for a product or provides a service is acquainted with nuance of business law. Most are unaware of what is necessary. The terms can be confusing with a sole proprietorship, corporation, limited liability company and other possibilities.

For those who are working for themselves and have neither the desire nor the need to work with others, a sole proprietorship is the easiest business type to use. Still, it is imperative to understand its benefits and drawbacks. With a sole proprietorship, there is one business owner who is responsible for its assets. It is not even necessary to move forward with formalities of organizing since the individual who owns it is in charge and performs the services or creates the product. This is a positive in that there are no shareholders to answer to or partners to split the profits with. The owner makes the decisions. Also, the owner does not need to file separate taxes for the business.

However, the sole proprietor can face challenges since there is no difference between personal debts and liability and business debts and liabilities. If there is an issue with a loan or something occurs in which a lawsuit is filed, the owner’s personal property is vulnerable. There can be no transfer of the tax identification to another person since it is the personal tax identification. If the person starts a sole proprietorship and keeps it categorized as such, the business hinges on the owner’s ability to run it. People who own this type of business can legally do so under an assumed name if it is in a name not their own. A form must be filed for this.

Many Texans are firm believers in personal responsibility and a sole proprietorship is a prime example of the kind of business structure that suits that sensibility. Even with that, it is essential to have a strong legal standing and understand how to address various issues related to a business. This is true whether it is a sole proprietorship or another business form. Consulting with those experienced in business law can assist with the formation of a business and any issue that arises.