Sole Proprietorship

         A sole proprietorship is the quickest, easiest and most common business structure.  So quick, in fact, that it is automatic!  A sole proprietorship is one and the same as the person running it.  A sole proprietorship’s income is the individual’s income.  A sole proprietorship’s expenses are the individual’s expenses.

         There are no special forms to fill out.  Even taxes are paid and reported on the individual’s tax return.  The number one advantage to a sole proprietorship is its simplicity and lack of formal requirements.  Anyone that had a lemonade stand as a child was a sole proprietor.  The business and the individual are one and the same.

          A major drawback of a sole proprietorship is that it offers absolutely no protection from debts or lawsuits.  If the sole proprietorship is in debt, the individual is in debt.  If the sole proprietorship gets sued then the individual gets sued.  If the sole proprietorship gets a $20 million judgment against it then the individual has that judgment against it.

        With a sole proprietorship an individual can’t sit back eating steak and lobster while the business goes bankrupt.  That is why when businesses grow and the individual gets some assets that they want to protect they typically change their business structure to something that offers more asset protection.

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