Deciding to open a business is a major decision that takes a lot of planning. One factor that you need to consider is the type of business structure you want to use. A single business owner may decide to run the company as a sole proprietorship. The issue with this option is that there aren’t a lot of protections with it.
A sole proprietorship means that one person owns the company and is the person who’s responsible for what happens with it. This gives you the freedom to make all the decisions on your own; however, you should be aware of these two points before you decide this is the structure you want to use.
1: Liability concerns
One of the biggest downsides to a sole proprietorship is that there’s no division between personal and business assets. This means that you can lose personal assets if your company is sued or owes money to other businesses or individuals. You can establish a limited liability company to draw that line between these assets so that claims against the company won’t impact your own property.
2: Tax considerations
The income the company earns is reported on your personal income tax return, and it is taxed as such. Establishing your company with a different structure, such as a corporation, separates the business tax returns from the personal ones.
Ultimately, you have to make decisions you feel are in your best interests. It’s crucial to provide your company with the structure it needs to thrive. Consider working closely with someone who can help you determine if you should opt for a sole proprietorship or something a bit more structured.