The most common business entity types are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here’s more about each type of legal structure.
A sole proprietorship is the simplest business entity. When you set up a sole proprietorship, one person is responsible for all a company’s profits and debts.
“If you want to be your own boss and run a business from home without a physical storefront, a sole proprietorship allows you to be in complete control,” said Deborah Sweeney, vice president and general manager of business acquisitions at Deluxe Corp. “This entity does not offer the separation or protection of personal and professional assets, which could prove to become an issue later on as your business grows and more aspects hold you liable.”
Proprietorship costs vary by market. Generally, early expenses will include state and federal fees, taxes, business equipment leases, office space, banking fees, and any professional services your business contracts. Some examples of these businesses are freelance writers, tutors, bookkeepers, cleaning service providers and babysitters.
A sole proprietorship business structure has several advantages.
Easy setup: A sole proprietorship is the simplest legal structure to set up. If you – and only you – own your business, this might be the best structure. There is very little paperwork since you have no partners or executive boards.
Low cost: Costs vary by state, but generally, license fees and business taxes are the only fees associated with a proprietorship.
Tax deduction: Since you and your business are a single entity, you may be eligible for specific business sole proprietor tax deductions, such as a health insurance deduction.
Easy exit: Forming a proprietorship is easy, and so is ending one. As a single owner, you can dissolve your business at any time with no formal paperwork required. For example, if you start a day care center and wish to fold the business, refrain from operating the day care and advertising your services.
The sole proprietorship is also one of the most common small business legal structures. Many famous companies started as sole proprietorships and eventually grew into multimillion-dollar businesses. These are a few examples:
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