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Why Be a Sole Proprietor?

In my law practice, I see a great number of clients who come to me because they are ready to open a business. Because I am a sole practitioner, a neighborhood lawyer, most of these clients are also one-man-shows, coming to me for advice on starting their small business. While it seems that, in the jurisdiction in which I practice, the favored business entity is the limited liability company, for a great many of my clients, I have been recommending sole proprietorship. If you are preparing to start your business, this form may work for you, as well. Here's why:

Simplicity - A sole proprietorship is a business entity that has no legal identity besides that of the proprietor, you. Because of this, starting the business and managing the business is usually a streamlined process. If your business carries your name, there are no incorporation papers to file. If you wish to use an assumed name, there is in most jurisdictions a very simple and inexpensive process to accommodate you. You need file no corporate tax returns, and in fact you don't even need to open a different bank account for the business. You are your business.

Low Cost - The costs and filing fees for starting a sole proprietorship are similarly very low. There is usually no paperwork to be filed with the state government. (By way of contrast, in Illinois the cost to form a limited liability company is $500.00 a heavy cost for the person just preparing to open their own small shop). Incorporation can end up costing thousands if you use a lawyer. You'll end up with impressive looking articles, a corporate seal, all sorts of government forms all unnecessary for most small business owners. You may pay $15.00 to $50.00 to stake your claim to an assumed name, but that's about it. Keeping costs low at the beginning is great advice for any small business.

Flexibility - Many entrepreneurs these days run multiple businesses at once, or change their line of work regularly. After all, keeping yourself interested and engaged in the way you make your living is one of the big reasons many people choose self-employment. Imagine you have a few profit centers, for example, you have a small writing business, you operate a delivery service in the evenings, and you practice your trade, say, plumbing. Setting up a corporation of any sort for each of these businesses, completing all the tax paperwork, maintaining bank accounts, corporate minutes, and all the other official paperwork, would prove to be extremely time consuming. Not for the sole proprietor. Your businesses are you. All of them. You can also change your work completely, without the need to go through the incorporation process again and again.

The various corporate forms other than sole proprietorship do offer some advantages, and sole proprietorships can have some disadvantages as well, largely in areas involving taxation and liability. Further, this article is no substitute for legal counsel, and should not be construed as offering advice to any particular reader. However, if you're getting ready to pen a small business, it would be a good idea to consult qualified counsel in your state on whether a sole proprietorship may be right for you.

Learn more about this author, Timothy M. Murphy.
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