Starting a Sole Proprietorship? Here are Things to Consider

Sometimes, starting a business seems like a lot of work–especially if it’s just you, doing something relatively small, like a side hustle of some sort, or random technical or physical work for various clients and customers. It may seem much easier to just be a sole proprietor and side-step all the legal requirements and technicalities of an actual legal corporation. But is that a good idea?

Ease and Freedom

Like most things, there is no one good or bad that applies to everyone–it’s more a matter of understanding the pros and cons.

The best thing, and the thing that makes sole proprietorships so attractive to people, is ease–you don’t have to file anything with the state, and there are no formal corporate governing documents, like bylaws or management agreements. You literally are the same as the business itself, and there is no business (proprietorship) without you.

If you’re a freelance writer, you just write and get paid; if you’re a plumber, you show up, fix things, and get paid.

Even better, because the business is literally just you, it means there is no hassling with employees or boards of directors or shareholders. You make all the decisions, and you can make them immediately, quickly, and without anybody else’s approval.

Taxes are easier as well–there are none for the business–all of your sole proprietorship’s profits run through you, individually.

No Legal Protection

Before you jump on board with the sole proprietorship, it’s important to know some other considerations–the main one being the lack of any corporate shield or veil.

Remember, we said that you literally are the business? That means that your assets may be at risk if the business does something wrong or gets sued.

Because you and the business are the same, the reverse can cause problems as well. If you have a personal creditor that obtains a judgment against you, personally, and completely unrelated to your business, that creditor can collect on the sole proprietorship’s assets. Your business tools, property, or machinery are at risk if you personally get yourself in legal trouble, which results in you owing money.

And, if you ever needed to file for bankruptcy, those sole proprietorship assets are yours, personally, as far as the bankruptcy court is concerned, and you could lose them, and thus, all or part of your livelihood in the bankruptcy.

Getting and Paying Back Loans

If you need banking help, loans, or other bank services, you may have a hard time.

Many traditional lending sources will not loan to a sole proprietorship at all; getting a loan is the same as getting a personal loan, which can limit your ability to get funding depending on your own personal credit history. And again–if you can’t repay that loan, it’s you, personally, who will owe it, not the sole proprietorship as a separate legal entity.

Let us help you start that new business. Call our West Palm Beach commercial litigation attorneys at Pike & Lustig for help.

Source:

dos.fl.gov/sunbiz/start-business/corporate-structure/#:~:text=A%20sole%20proprietorship%20is%20the,the%20business%20and%20the%20owner.