Pros and Cons of Sole Proprietorships

This article discusses the Pros and Cons of Sole Proprietorship. Orange County business lawyers help you to decide what type of business structure is the right one for your particular situation. You have different options regarding how you structure the business that you are operating and the decision you make regarding what type of business entity you form has profound implications on many aspects of operations. 

One of your options when deciding how to structure your company is to operate as a sole proprietorship. While there are benefits to running your business as a sole proprietor, there are also some significant disadvantages to choosing this option as well. Brown & Charbonneau, LLP can provide insight into whether running your company as a sole proprietorship is right for you so give us a call today to talk with Orange County business lawyers who can help you.

Advantages of Running Your Company as a Sole Proprietorship

Many people operate their business as a sole proprietorship because this is essentially the default option unless you select another business structure. If you start doing business and you have not gone through the process of forming a partnership, a Limited Liability Company, a Professional Corporation, or an S-corp or C-corp, then you are most likely operating as a sole proprietorship.

When you operate as a sole proprietor, you do not need to specifically do anything special in order to set up your business entity. You don’t have to pay for the process of incorporation or fill out the necessary forms and paperwork. You don’t have to submit articles of incorporation or other documents to the state, either when you initially start operating your business or on an ongoing basis each year in order to maintain your status. You also don’t need to do things such as issuing stock, electing corporate officers, or holding annual minutes with meetings.

You also do not have to submit a separate business tax return for your company, and your business does not have to pay its own taxes independently of you — although if you sell products you may need to collect and pay sales tax and if you have employees you’ll need to pay payroll taxes.  But, unlike with a corporation, your company does not have to submit its own separate tax return so the costs of accounting can be lower.

Because of the simplicity, the lack of initial and ongoing costs, and the lack of special requirements, operating as a sole proprietor can often be the easiest way to run a business.

Disadvantages of Running Your Company as a Sole Proprietorship

Unfortunately, there are many disadvantages associated with running your business as a sole proprietorship. When you operate your company as a sole proprietorship, there is no separation at all between you and your company.  If your business is sued, your personal assets are at risk. If your company goes bankrupt or gets badly into debt, you’ll have to go bankrupt or your personal assets could be in jeopardy of being lost due to the debt your company is in.

You have no protection from liability when running your company as a sole proprietorship, so when anything goes wrong with the company for any reason, you are personally on the hook for problems.

And, because your business does not exist independently of you, it can be really hard to transfer ownership if you don’t want to be involved in the business any more or if you pass away. If you want your company to survive beyond you, you may want to choose another type of business structure.

Getting Help from Orange County Business Lawyers

Orange County business lawyers at Brown & Charbonneau, LLP will assist you in evaluating the pros and cons of running your business as a sole proprietorship and will also help you to understand the advantages and the disadvantages of other methods of organizing your business as well. If you decide that you would prefer another type of business structure such as a Limited Liability Company (LLC) or a corporation, our legal team can help you with the process of forming the business entity that is right for you.

You shouldn’t hesitate to get help from a business attorney as you don’t want to continue operating your business under the wrong structure that leaves you and your company vulnerable. To find out more about how our firm can help you to decide what type of business entity is best for you, give us a call at 714-505-3000 or contact us online today.