Taking the plunge and starting a business is a daunting task. You must sort out a lot more than papers and registration, from soliciting clients to managing short and long-term funds to creating business plans. When you are relatively new to the field, the legal requirements to establish your enterprise can be frustrating. If you’ve already decided to register as a sole proprietor, you should learn about the benefits and drawbacks of doing so. A sole proprietorship registration has various advantages, but it also has a few limitations that can be readily overcome.
Advantages of a Sole Proprietorship
Let’s look at the benefits of a sole proprietorship now that we have a fundamental understanding of what it is.
There will be less paperwork
If you operate a tiny business, a sole proprietorship is the best option because you won’t have to deal with a lot of paperwork. Other business structures necessitate state registrations, whereas a single proprietorship does not, however a local permit may be required.
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Tax payments are simple
Another advantage is that, in comparison to other arrangements, the tax obligations are easy and uncomplicated. Sole proprietors can collect and pay employees using their social security number, but they can also register for an EIN. Sole proprietors are taxed using their personal tax return, and they do not have to pay it separately.
Business fees are lower
You can save money on registration fees as a sole proprietor since they do not have to comply with the legal requirements of having to register with the state, which is required in other business structures. Since there is no contract with third-parties, there is no need to maintain privity of the contract.
Banking made simple
In order to start a business, a sole proprietorship does not require a business checking account. You can make and receive payments straight from your personal bank account, but you must monitor your transactions.
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The few downsides of sole proprietorship
Although there are advantages to owning a firm as a sole proprietor, the disadvantages do not outweigh the advantages. Because a sole proprietorship does not require registration, you may miss out on a few legal perks, yet the good news is that you can still incorporate your firm as a single owner. Incorporation of your business would allow limited liability but you do not have to worry about maintaining privity of the contract.
This also means that as a sole proprietor, incorporating your business would help you to incur liabilities, own properties, and carry out businesses without having to risk your personal properties. Starting 2020, sole proprietors are now able to apply for and receive loans to support their expenses and payroll through existing Small Business Administration (SBA) lenders.
Conclusion
While sole proprietorship gives you unique control and ownership, it also makes it more difficult to sell your business. As a result, before considering sole proprietorship registration, you should conduct thorough study about the characteristics of the various company structures. As a sole proprietor, you can overcome the difficulties by enlisting the help of a local lawyer.
