A sole proprietorship is an unincorporated business operated by one person. A lone proprietor pays taxes in their own name and is individually accountable for any debts or legal proceedings brought against the company.
A sole proprietorship is an unincorporated business operated by one person. A lone proprietor pays taxes in their own name and is individually accountable for any debts or legal proceedings taken against the company.
Sole proprietorships are popular among many company owners due to their ease of formation and maintenance, but they can have drawbacks.
Sole proprietorships offer various benefits over more formal business arrangements such as corporations and limited liability organisations (LLCs), including the following:
One of the most significant benefits of a single proprietorship is its ease of formation. In fact, most states do not need any paperwork to get started – you may just start conducting business under your own name. However, registering a DBA for the firm may be a smart idea. This will enable you to operate under a name other than your legal name.
For tax purposes, a sole proprietorship is indistinguishable from its owner since it is an informal company structure rather than a distinct legal organisation.
Sole proprietorships are pass-through businesses, which means that all of the business’s revenues and losses are passed through directly to the owner’s personal income tax filing rather than being subject to corporation taxation. The tax rate on the earnings of the firm will be determined by the owner’s personal tax bracket.
Along with personal income tax, sole owners must pay a self-employment tax of 15.3%. This includes both the employer and employee contributions to Social Security and Medicare.
These are covered in more depth in our state-by-state How to Start a Business guides, but here is a short summary of the fundamental processes after creating your business: