Sole Proprietorship

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Overview

A sole proprietorship business is neither a corporation nor a limited liability company. In simple terms, sole proprietorship refers to a business that is run by a single person. Being one of the simplest of all business models, it can be set up with little effort. People who are actually sole proprietors may not even be aware of it. For instance, freelancers in a variety of fields, commissioned salespeople who do not earn fixed salaries, independent contractors, and also if anyone provides goods or services for a specified fee, then technically they all are sole proprietors even if they haven't filed their paper so.

How it Works

Starting a sole proprietorship business is hassle-free. You need to register your business with the secretary of state, or in some cases, you can just start doing your business without registration. Sole proprietorship is a one-man business. The sole proprietor enjoys all the profits as well as bears all the risks of his business.

Benefits

If you set up your business as a partnership, a corporation, or a limited liability company, then there is a lot of paperwork involved in registration along with its nominal fees. You also need to bear the fees associated with such set-ups. There is no special paperwork or extra fees involved in the case of sole proprietorship. Adding to the benefit list is maintaining a sole proprietorship is much simpler than any other business model. Taxes are simplified with sole proprietorship as your business, and you are considered as a single entity. All that you need to pay is the self-employment tax, consisting of the social security and Medicare withdrawals, which is as usual withheld from your check in case of employment in other companies.

Income tax details are reported on your regular personal income tax form. No additional or separate form is involved, minimizing the cot to a maximum. If you are a married sole proprietor, you can get a great deal of benefits as far as your healthcare expenses are concerned. If your spouse is employed in the same concern, then your spouse is eligible for a healthcare reimbursement arrangement, which can meet the major portion of your yearly healthcare expenses.

Costs

Setting up a sole proprietorship does not call for large capital. You only have to pay the registration fee pertaining to the nature of the business you are starting. You might incur additional costs for purchasing your health insurance. It is important to remember that unlike a corporation or a limited liability company, the business and the owner will be reviewed in the same manner. So, any debts that you incur through your business are your responsibility and to pay back that you can sell your personal assets. Typically, you'll spend around $200-$500 for start up costs in fees for sole proprietorship.

Timing

People opt for sole proprietorship when their business is small-scale. If your capital is limited or if your business requires direct and personal relationship with the customer, you can choose sole proprietorship form of business.

Last Updated: December 20, 2011
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