Is a Sole Proprietorship the Right Business Formation for Me?
Jan. 7, 2021
By nature, Texans are self-reliant and want to have control over their own future. This is rarely more evident than when a person is moving forward with a business endeavor and selling services, goods or products. The technical and legal aspects of starting a business can be confusing. Understanding what is necessary with business formation and planning is an integral part of adhering to the law and being fully protected. For those who are unsure of how to start, it is wise to understand the basics of creating a business. If one person is overseeing the entire business, a sole proprietorship could be the best option.
What Should I Know About a Sole Proprietorship?
With a sole proprietorship, there is no need for intricate and in-depth legal knowledge. A formal organization is not necessary. The person can even use an assumed name to run the business if a certificate stating it is used. This is called a DBA or an Assumed Name Certificate. A fundamental factor in creating a sole proprietorship involves being aware of its pros and cons.
The positives are that there is simplicity with a sole proprietorship giving the business owner various freedoms. The owner will use his or her personal taxes to report earnings and losses. It can easily be initiated or terminated. If the business grows or undergoes changes and the owner wants to change it to a different business entity like a corporation or a limited liability company (LLC), it is easy to do.
Negatives include the owner being solely responsible for any debts that are accrued. This can cause personal financial problems if the business faces challenges. The owner must also find the money to fund the business. With insurance, the owner is responsible for it personally. If the person cannot oversee the business for any reason, it can harm it and the personal finances.
Even Sole Proprietors Need Legal Advice
It is generally inevitable that a person starting a business will make mistakes. To mitigate those mistakes and be fully prepared for any eventuality that may arise, it is useful to have legal representation. This is especially true if a person is using the simplest business entity available with a sole proprietorship. In some instances, the sole proprietorship is not the way to go. Regardless, having legal assistance from the start can be beneficial. A firm with experience in all aspects of business formation and planning may be able to help.