You may have finally decided to become an entrepreneur. There are different business structures to follow. You might have less capital and be interested in becoming the only owner i.e. Sole Proprietorships. Such structures enable quick decision-making that will go in your favor.
Starting a business
Launching a small business is really an intimidating process. This will require strong business strategies, managing long and short-term finances, and soliciting customers. Also, you are to sort through different forms, and papers or complete registration steps. You can easily establish Sole Proprietorships business as it needs fewer procedural steps when compared to other entities such as corporations. Also, it does not involve complex financial or legal setup.
Benefits of Sole Proprietorships
1. Easy tax setup:
Such setups need straightforward and simpler tax requirements. EIN filing is not desired by sole proprietors. You may use your SSN (Social Security No.) like in any normal transaction. You can even apply for EIN and use it if you desire to. Such business structures get taxed like pass-through entities. This means, your personal tax returns will show income and losses of your business. All tax requirements can be done in your 1040 annual form. You can even benefit from a 20 percent tax deduction as stated in the 2017 Tax Cuts & Jobs Act.
2. Less paperwork:
This business entity does not require filling up lots of paperwork. State registration is not required as you can carry your business and become an active business entity. However, you will require a business permit or license based on your local or state government rules and regulations. This structure allows you to make quick business decisions and enhance your business prospects.
3. Straightforward banking:
Simplified banking is another benefit offered. A business checking account will not be necessary for your business operations. Business payments can be accepted and made using personal bank accounts! There is no need to open a business checking account. You do have the option to separate business and personal finances.
4. Fewer business fees:
You are likely to have a tight budget when launching your first business. Since no registration is required, you can save some money here. LLCs generally need to pay an annual fee as mandated by most states for maintaining their registration. Such fees, however, might add up requirements. However sole proprietor businesses do not have to pay such fees.
5. Simplified business ownership:
It is easy to set up and make business decisions in this structure. Corporation or LLC comes with other concerns something sole proprietors do not have to face like registered agents or company officers. You will have full control over how to operate your business without any outside intervention.
Disadvantages
1. Tough to derive business credit and financing:
Securing financing or loans is not an easy task. The reason is banks and financial institutions prefer to work mainly with well-established companies. Besides having larger revenue, such companies have a substantial credit history. However sole proprietors find it difficult to develop business credit similarly as they will not have business bank accounts or business credit cards.
Moreover, businesses are entirely reliant on a single owner for credit history, finances, and initial investments. Securing business financing is also not an easy task for conventional lenders. However personal loans can be availed to fund business operations.
2. No liability protection:
It is not mandatory for such structures to get registered with the state of operations. Hence, no benefits can be derived that legal business entities enjoy. Being a sole proprietor will mean being self-employed. Your business does not get any legal protection. This means you will be held liable for all tax, financial, and legal issues faced by your company. Wrong decision-making might mean you can face hassles.
Considering the above aspects, Sole proprietorship can be a great way to launch your new business. As you grow and expand, you can always change your business structure as the need arises.
