A sole proprietorship is the most common and simplest type of business entity. If you are running a business without partners, and you did not take steps to establish a corporation or limited liability company, then your business is by default a sole proprietorship.
There are advantages and disadvantages in running your business as a sole proprietorship. Some advantages are ease of start up, less paperwork, and fewer legal restrictions. In addition, a sole proprietor retains all profits and may easily discontinue the business at any time.
One disadvantage of running your business as a sole proprietorship is that there is no barrier between you and the business to limit your personal exposure to liability for business debts or other business liabilities. Another drawback is that venture capital is not an option for start up financing because a sole proprietorship by definition can only have one owner.
You must also consider when you need to register a fictitious name for your business. If your proposed business name contains any words other than your given name and the nature of your business, then you must register a fictitious name with the Pennsylvania Department of State. Other rules apply, and we will discuss fictitious names more in an upcoming article.
As for tax structure, sole proprietors report income or losses for the business on Schedule C, Profit or Loss from Business. New small businesses frequently operate as sole proprietorships as the business grows, until a need to expand causes the owner to reevaluate his options.
If you need guidance selecting the right type of business to file, or any other matter related to managing your business, the attorneys at the Scolieri Law Group, P.C. can help. Located in western Pennsylvania, our attorneys are experienced in Pennsylvania business law and can take care of the details for you, including the formation of a legal business entity if needed. Contact us today at (412)765-0546 or firstname.lastname@example.org.