Consider liabilities before entering a sole proprietorship

On behalf of Brewer, Pritchard & Buckley, P.C. on Thursday, August 30, 2018.

A sole proprietorship is a simple business form in which one person owns the business. It’s common for small, locally-run businesses to start out this way. Operating a business under this formation can be financially beneficial. The owner avoids big corporation taxes. Additionally, there’s no middleman, so owners have complete control in the decision-making process.

Sole proprietorship presents unique liabilities

The benefits of owning a sole proprietorship are clear. However, it’s important to be aware of the liabilities that come along with this type of a business formation, such as:

Debts: There’s a possibility your business might fall into some debt. If this occurs, it becomes your personal debt. You will be responsible for managing and paying off the debt. Creditors are also able to sue you personally.
Creditors, again: In continuation, all your debts would be connected. If you’re dealing with personal debt, creditors oftentimes go after your business profits.
Torts or injuries: The owner of a sole proprietorship is liable for any injuries that occur in relation to the business. To add a layer of protection, it’s wise for business owners to purchase liability insurance.
Any type of business formation comes with some liabilities. It takes research and professional guidance when picking the right one. Sole proprietorships offer unique benefits as well, which include mixing assets and tax breaks.

Legal documents are not required when forming a sole proprietorship. However, some owners choose to register with the secretary of state. In doing so, they can obtain separate tax and employee identification numbers. It’s wise to seek legal help when going through this process. Doing it alone could result in errors, delays and other costly mistakes.