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Sole Proprietorship

This is the most basic structure. You became a sole proprietor the minute you hung out your shingle, whether that was on the Web or on the street. You are generally doing business under your own name, and you are the sole owner of that business. Since your sole proprietorship is not a corporation, you don’t wind up paying corporate taxes. Instead, you simply pay taxes on the profits of the business. This simplifies the accounting chores a great deal.

A Sole Proprietor may elect to do business under a fictitious name. This is not as sinister as it sounds; it simply means the person in question is doing business under a registered trademark. For example, John Smith may have named his business “Anytown Doodads and Supply.” That would be considered a fictitious name, and his license would say “John Smith, DBA (Doing Business As) “Anytown Doodads and Supply.” This also enables Mr. Smith to open a separate business account at the banking institution of his choice.

The advantages of a Sole Proprietorship:

• You have the greatest control over business decisions, since typically you have nobody else to answer to.

• A Sole Proprietorship is easily formed and dissolved, requiring little in the way of legal formalities.

• Accounting is much simpler. Tax forms are usually only 1-2 pages long, and recent changes in tax laws allow Sole Proprietors to file annually instead of quarterly.²

• A Sole Proprietorship is subject to very little in the way of government regulations.

• Company profits go directly to the business owner.

Disadvantages of a Sole Proprietorship:

• Raising capital is more difficult, since you cannot sell shares of the company, and a Sole Proprietorship has a smaller degree of perceived “legitimacy” than a corporation or an LLC.

• It is more difficult to secure bank financing.

• Hiring of employees can be more of a problem.

• You can be subject to both the Federal Tax Rate and a “self-employment tax,” effectively being subject to double taxation.

• The “biggie:” UNLIMITED LIABILITY. This means that if your business is sued, your own personal assets are at risk.

Sole proprietors can experience a major benefit by joining Association 105. This is available through the Benefits Administration for the Self-Employed, or B.A.S.E. (http://www.association105.com). Not only does this organization provide several helpful resources, it can make 100% of your medical expenses (insured and out-of-pocket) tax-deductible (normally, you would only be able to deduct amounts in excess of $6500 as of 2006). These and other benefits are available to other types of business entities as well – visit the B.A.S.E. website for more information.

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