Sole Proprietor Julian Rana, KalynSourwine, MikaelaWendel, and Jeff Yasalonis
Advantages Easy to start – The owner only needs small amounts of capital to start the business. Easy to organize - A sole proprietor does not need to be concerned with the opinions of a partner or investor, decreasing the amount of time needed to start up the business. Owner makes the decisions - There is no need to compromise on price, goods, or services. Therefore, there is no risk of fraud by a partner. Minimal legal restrictions – Restrictions and costs are limited to obtaining the necessary license or permits. You get all the profits - Profits are not split between various investors, increasing the amount of profits for the sole proprietor. Easy to close - The only person affected by the closing of the business is the business owner, therefore it can be closed down quickly and without much struggle. Easy tax preparation – The business is not taxed separately from the sole proprietor which results in a tax rates being low.
Disadvantages If the company is sued, your personal assets can be at risk - If a customer gets sick or is harmed by a product, they can sue the proprietor. This can cause the owner to lose their car or home. Limited ability to raise business capital - If a proprietor can not raise enough funds through their own personal income, they are held personally responsible for any loans they may take out for the business. Sole proprietorships cannot sell stock, so it makes it hard expand the business. You are responsible to pay Income/SE Tax on all profits from the business – Even if the business is not doing well, the sole proprietor is responsible to pay all taxes. Banks are hesitant to lend – Because of a perceived lack of credibility when it comes to repayment, banks are hesitant to lend to sole proprietors.
Hairdressers Many hairdressers lease or rent their chairs in salons, making them sole proprietors. They are responsible for obtaining their own clientele and receive the majority or all of the profits from their services. They are personally liable for any harm they cause the client, but may have a say in their pricing and list of services they will provide.
Lawn Care If a high school student mows the lawns in his neighborhood in exchange for a fee, the student is a sole proprietor. He is responsible for the cost of gas, equipment, transportation, and other necessities. If he earns more than $600 from any one individual, he must fill out an IRS Form 1099-misc for income taxes.
What is a Sole Proprietor? A Sole Proprietorship is the smallest scale start a person who wants to start their own business begins with. Once this person starts the business and establishes themselves as sole proprietor, they are subject to all the profits including the entire taxation specific to the business. Every asset of the sole proprietor’s business is owned by the sole creator and all the debts are under the responsibility of them as well.
How to Construct a Sole Proprietor Forming a sole proprietorship is simple in form because the owner does not need to take any formal action. As the sole owner of a business, the title of sole proprietor automatically comes when the business is established. After establishing the business, its name, products, and services, the owner must obtain the necessary licenses and permits which usually vary by industry, state, and locality.
Taxation and Other Burdens As sole proprietor, the business itself is not taxed separately; the sole proprietorship income is the owner’s income, so the taxes fall under income taxation. Owner must report his or her income and or losses and expenses with a Schedule C and the standard form 1040. Bottom line from Schedule C transfers to your personal tax return. Owner’s responsibility to withhold and pay all income taxes which include self-employment and estimated taxes.