People who are starting a business have several factors to consider before they open the doors. One of these is the type of business structure they want to use. Some entrepreneurs are starting a business on their own, a sole proprietorship is one of their options.
Typically, a sole proprietorship is the simplest and quickest option. Before deciding on this option, there are a few things to consider.
Limited personal property protection
A sole proprietorship doesn’t have any division between the business and the owner. This means that if someone sues the business and wins, the owner’s personal property, such as their vehicles or home, may be seized to pay off the lawsuit. Some business owners, particularly those who are in high-risk industries, don’t want to risk that happening, so a sole proprietorship isn’t their best option.
Tax considerations
A sole proprietorship is taxed through the owner on their own income tax return. This includes paying self-employment taxes on income. If the person will employ other individuals, they must obtain an Employer Identification Number from the Internal Revenue Service. They must also ensure they withhold taxes from employee pay, as well as paying any taxes the company is responsible for paying.
The decision about how to structure your business is important. New business owners who aren’t certain about whether a sole proprietorship is best for them should consult with someone familiar with opening a new business. Taking the time to evaluate the options may help to provide valuable protection for these individuals as they embark on the entrepreneurship journey.