A sole proprietorship is a one-person business that can be operated out of a home without incorporation and without massive amounts of complicated tax forms to file at tax time. This type of business is subject to self-employment tax and in the United States, typically uses Internal Revenue Service forms 1040, schedule C and schedule A ,unless a standard deduction is used.
Why not a partnership or franchise?
The choice to operate a sole-proprietorship is assisted by the knowledge no business partners are involved, the individual will be responsible for generating income, managing expenses and business operations. If a sole proprietor plans on raising equity capital, adding shareholders and expanding the business a limited liability corporation, partnership or ‘S’ corporation may be a better choice.
Benefits and Disadvantages of Sole Proprietorships:
Benefits of sole proprietorships essentially include control, simplicity and tax savings. It is an ideal company for a self employed person or independent contractor who operates out of a home office. Additionally, things like office expenses, property taxes, utilities and vehicles expenses may be deducted from the proprietor’s income on the IRS schedules A and C. Had that individual not been a sole proprietor, such expenses would not have been as easily deducted.
On the flip side, the owner of a sole proprietorship is responsible for any debt and liability the company incurs. This could mean a proprietor can be accountable and/or sued for damages, problems or adverse consequences resulting from the operating of the business. For example, if owner A runs a roof repair business and inadvertently causes damage to a roof from a faulty rafter installation, that owner is liable for the repair of the roof and/or any costs associated with it.
The Ideal Sole Proprietor:
The ideal sole proprietor is probably a self-motivated, enterprising, independent and entrepreneurial individual with a trade or skill that can be employed through servicing individually generated clients. What’s more, the sole proprietor should be organized, competent and self reliant in managing client accounts and services, business overhead costs and operations such as advertising and marketing.
How to increase success in a sole proprietorship
Successfully running a sole proprietorship can yield great rewards including freedom, self-fulfillment, wealth and the knowledge one doesn’t need to have a boss to survive in the business world. Attaining and increasing this type of business success requires a diligence to regularly acquire and maintain clients and/or business transactions, and a skill that can generate income on a consistent basis. Sole proprietorships do not have to be complicated to manage, but they do have to be run well, with ability and awareness of what is involved.