Choosing a business structure is one of the first and most important decisions a new business owner makes. In general, a business can operate as a corporation, partnership, limited liability company, or sole proprietorship. When starting your business, it’s important to ask, “Is a sole proprietorship right for me.”
Will a Sole Proprietorship Cause Your Business to Take Off?
Like all business entities, sole proprietorships have advantage, including:
- Formation. A sole proprietorship is the easiest kind of business to form. For example, it is usually not necessary to file any documents with the Alabama Secretary of State. New companies may register their business name, but that is optional. Other entities, like corporations, have to file forms with the Secretary of State and may be required to renew their registration annually.
- Management. A sole proprietorship might be the best option for you if you prefer flying solo. There’s no one to negotiate with or disagree with your choices. The owner is completely in control.
- Taxes. Sole proprietorships are pass-through entities. This means business does not pay taxes. Instead, the owner claims the company’s profits on his or her personal income tax return. Under the new tax bill, most sole proprietors receive about a 20% deduction from taxable business income.
However, sole proprietorships may not be right for everyone.
When a Sole Proprietorship Is Not the Best Solution
Like all business entities, sole proprietorships have disadvantages, including:
- Management. Going it alone can be lonely! With a partnership or corporation, there are other owners to help carry the load. Sole proprietors, though, shoulder all the responsibility of forming and managing the business.
- Liability. Some business owners enjoy limited liability because of the business structure they have chosen. Sole proprietors, however, are personally liable for most, if not all, claims against their business.
- Capital. Sole proprietorship typically find it more difficult to raise money for the business. Without shareholders or contributing partners, the sole proprietor usually borrows money. Some financial institutions are leery of this. Also, the business owner often uses personal property for collateral.
Review Your Estate Plans Regularly.
The attorneys at Miller Estate and Elder Law understand the estate planning needs of their clients. Contact Miller Estate and Elder Law at 256-251-2137 to schedule an appointment. Though our offices are in Anniston and Birmingham, we help clients in Talladega, Gadsden and surrounding communities.