Basics of a Sole Proprietorship

Posted: May 7, 2009 1:41 PM
Updated: May 7, 2009 1:41 PM

Real Small Business: Building Your Business

From the Editors of Real Small Business

Sole proprietorship is the quickest and easiest business structure to adopt. If you don't incorporate and don't have a partner, you are automatically a sole proprietor. Legally, you and your business are the same. As a sole proprietor your net profit is taxed at personal income tax rates and you are personally liable for any debts or losses you incur.
If you run a one-person business that has limited liability, you may not need to bother with the expense and time of incorporation or any other more complex form of organization. Sole proprietorship can also be a good choice for businesses in the start-up phase because it does not have a lot of legal requirements.
As a sole proprietor, you may still need to register your business. Business licensing differs from state to state. Some, like California, require nearly all businesses to register; others have relatively few requirements. If, however, you are doing business as a sole proprietor under a trade name rather than your personal name ("City Architects", as opposed to "John Smith, Architect"), you will likely need to get a business certificate or register as a DBA (Doing Business As). This allows your customers, your suppliers, the government, and anyone else your business deals with to know who the real owner of the business is.
"Doing Business As"
You may choose to register as a DBA even if the law doesn't require you to. A DBA can help you open a business bank account and may reassure some clients that you have lasting power. In most cases, you register for a business certificate (DBA) at the county clerk's office. In a few cases you register with the state or city, but a call to the county clerk will resolve the question.
Benefits
It's the least expensive and least complicated business structure to form Good for a trial run while you see how your business evolves
Disadvantages
Owner is personally liable for debts and losses Offers no other type of liability protection