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What is a sole proprietorship?

On Behalf of | Feb 25, 2023 | Business Formation & Planning

One of the first decisions you have to make when you open a business is what type of structure you’ll use. Many people choose a sole proprietorship. This is the easiest type to start, but there are some limitations you should know about.

If you’re ready to open a business and are considering a sole proprietorship, review these points to determine whether this is a suitable structure for your business or not. You may realize that you should explore other options in order to better protect yourself and your business.

Limited protections

One of the downsides of a sole proprietorship is that it doesn’t provide any division between the company’s assets and your own assets. This means that if the company gets sued for something, the plaintiff can go after your personal assets. This means that a sole proprietorship might not be the best option for a company that could have a high risk of lawsuits or customer dissatisfaction.

Tax considerations

When you have a sole proprietorship, you have to file the business’ taxes on your own personal income tax return. You’ll need to complete a profit and loss statement to go along with your income tax return. This is called a Schedule C in your income tax return packet.

Taking the time to get your business set up properly can save you a lot of work in the future. Having experienced legal guidance with these matters can help to make the process easier. Having legal guidance can also help you protect the company from legal claims.