WHAT IS A SOLE PROPRIETORSHIP?

Pros and Cons of a Sole Proprietorship

Advantages of a Sole Proprietorship:

• Full control of Business; sole owner.

  You alone call all the shots; make all decisions; have the final say, in all aspects of your business.

• Sole proprietor receives all profits.

  As a sole proprietor, all the profits in your business flow directly and solely to you.

• Access to business loans

  Though unincorporated, a Sole Proprietorship is a business entity and has access to business loans. However, you will be personally liable for all debts to creditors.

• Simple and easy to start

  No state filings, no state annual reports, few formalities, less fees; Register a name, get your license, and go!

• Easy record-keeping requirements

  Record keeping is relatively straight-forward when you’re the sole owner and funnel for all income and expenses.

• Being a Pass-through Entity; Better Tax Rates

  Owners of a sole proprietorship don’t have to file both business and personal taxes (read more on taxes below)

Disadvantages of a Sole Proprietorship:

• Unlimited Liability; You May Lose Your Personal Assets

  Unlike a Corporation or a Limited Liability Company (LLC), Sole Proprietorship owners are personally responsible for all debts and claims against their business. If anyone wanted to take legal action against an LLC, they could only sue the business entity, not the owners. A Sole Proprietor lacks liability protection and risks losing their personal assets.

• Taxes (Read more on Sole Proprietorship Taxes below)

  There’s no contrast between personal and business income from a tax perspective. The tax rates for income from a Sole Proprietorship depend on individual tax bracket.

• Hard to Raise Money

  Business Lenders typically prefer to work with ‘limited companies’, partly due to a Sole Proprietorships lack of shareholders, partners, and members. You also can’t raise capital by selling an interest or share in the business. If you need to raise money for your business, check out our services.

SOLE PROPRIETORSHIP TAXES

Sole Proprietorship Tax Rates and Tax Bracket

The tax rates for the income of a Sole Proprietorship will depend on the owner’s tax bracket. For example, if your Sole Proprietorship profited $550,000 after expenses—even if you only paid yourself $100,000—you will still be in the 37% tax bracket, not the 22% (according to 2019 rates). Making you pay more in unnecessary taxes!

LLC VS SOLE PROPRIETORSHIP

The difference between a sole proprietorship and a LLC:

It’s also easier to raise capital as an LLC since lenders prefer working with them over Sole Proprietorships. If you work from home or use personal assets for your business, you could have the LLC lease the home office or other assets from you; enabling you to write off the use of personal assets as business expenses.

S-CORPORATION VS SOLE PROPRIETORSHIP

SHOULD YOU START A SOLE PROPRIETORSHIP?