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So, you are planning on starting a business. One of the first, and most important, things you should do is decide what type of business you want to create.
As you may remember from our previous blog titled “Why Should I Form an LLC?”, determining the type of ownership for your business can be challenging but how do you know you’ve chosen the right one?
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]A sole proprietorship may be the perfect fit for you.
According to the SBA, a sole proprietorship is defined as:
“the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.”
Before deciding which business structure works best for you, consider these three things about a sole proprietorship.
When creating a sole proprietorship there is not much you need to do. Other than a simple form, you essentially just start your business. There is no need for expensive legal fees, extensive forms to fill out or business partners to accommodate.
What you need to start
Creating a Sole Proprietorship in North Carolina is as easy as filing a DBA, doing business as, with the register of deeds. This is used in place of a company name, since you will be doing business under your name. After you register the DBA, you can get your EIN and tax id number that will allow you to set up your business bank account.
Here is a great resource from Legal Zoom that can walk you through the steps to becoming a sole proprietor.
How to file taxes
Since a sole proprietorship isn’t a legal entity, you will file your business taxes with your personal taxes.
You would report your income, losses and expenses by filling out and filing a Schedule C, along with the standard Form 1040. Your profits and losses are first recorded on a tax form called Schedule C, both forms need to be filed.
This is made incredibly easy by finding a local North Carolina CPA that specializes in business services.
There is little protection
As a sole proprietor, you are responsible for all debts. If you take out a business loan, take on business expenses and the business doesn’t work out you are liable for all debts. This could mean the loss of your personal assets.
Unlike an LLC or a corporation, a sole proprietorship also does not offer any legal protection should a client decide to sue.
Keep this in mind when deciding whether to go this route.
A sole proprietorship is a great place to start when building your business as it needs very little startup costs and setup, filing taxes are easy, but it doesn’t provide the same legal protection as a corporation would.
Many first-time small business owners will use a sole proprietorship as a stepping stone to an LLC. If you are starting a business and the sole owner, this route may be the best for you.[/vc_column_text][/vc_column][/vc_row]