Let’s take five reasons, and show you why you should consider forming a sole proprietorship for your business idea today!
A sole proprietorship is an unincorporated, informal business structure that is not legally separate from its owner. If you want to start a sole proprietorship to launch your new business idea, then here a list of five reasons why you should form a sole proprietorship.
According to academic research, sole proprietorships are the simplest and least expensive type of business to form and maintain. Scholars have found that self-employment (in terms of sole proprietorships) have gone up from 11% in 1969 to 19% in 2009. Forming a sole proprietorship is relatively easy in the US, in most states you are not required to file any forms or pay any fees in order to form a sole proprietorship, which is why it is such an attractive option of business structure. All you need to do is to conduct business under your own name, that’s if you do not have a “doing business as” (DBA) name for your sole proprietorship. However to register your DBA name may cost you anywhere between $10 and $125 depending on the state in which you registered your business in.
As the owner of a sole proprietorship, you will essentially be self-employed, and with that comes 100% control and ownership of your business. You can use this to benefit you because the more work you put in, the more success and profit you will reap as your business grows. Business transactions, sales and purchases can be made at your discretion, you will have the full decision-making power in your sole proprietorship.
According to the Internal Revenue Service (IRS), sole proprietorships qualify for what is called “pass-through taxation”. This means that, as a sole proprietor, your business’ profits will be passed on directly to you, its owner, for you to report the total income on your personal tax returns. Your sole proprietorship’s profits will therefore only be taxed one, on an individual income tax rate (rather than a corporate tax rate) when you file your annual tax returns with the IRS. As a sole proprietorship, your business will also not be subjected to corporate taxes, which is in itself, another benefit all on its own, of sole proprietorships.
Because you are the sole owner of your sole proprietorship, and because all the profits of your sole proprietorship is passed onto you to be reported on your personal tax returns, after you have been taxed, you will retain all the profits generated by your sole proprietorship in any given year. It would be clear to re-invest a portion of your profits back into your business but this is something you may decide to do at your own discretion. For sole proprietorships there are no legal documents that determine and define ownership and operating procedures, so you will be free to run your business as you see fit, and retain and spend all business profits as you see fit.
If your business idea is low-risk and low-profit based, then forming a sole proprietorship is the best thing to do for your business. You and your business will thrive if your business proposal has a low chance of being found legally liable (in the event of a lawsuit) and has a low chance of financial loss. If these criteria meet your business idea then forming a sole proprietorship is the next step to take. Sole proprietorships will also suit people who want to pursue their hobbies on a more professional scale; with a relatively small customer base they can turn their hobbies into a professional business.
To find out more about how you can get your business idea off the ground, you can visit TRUiC’s website for more information, guidance and hand-on assistance on how to form a sole proprietorship today.