In most states, including Maryland, there are six main types of business organizations: (1) sole proprietorships; (2) general partnerships; (3) limited partnerships; (4) joint ventures; (5) limited liability companies; and (6) corporations. The most basic form of business organization, and easiest to set up, is the sole proprietorship.
What is a sole proprietorship?
Many people choose to operate their business as a sole proprietorship because a sole proprietorship is simple to create and govern. A sole proprietorship is not a legal entity and, thus, does not require any formal documents to create it. A sole proprietorship simply refers to the person (the owner or “sole proprietor”) who is personally liable for the debts incurred by the sole proprietorship. In order to operate as a sole proprietorship, the sole proprietor need only register their name and obtain the requisite licenses to operate its business; however, the sole proprietor may choose to register a trade name and/or file a trademark registration.
Another advantage of a sole proprietorship, beyond its ease of set up, is its manner of taxation. As noted above, a sole proprietorship is not a legal entity. Since it’s not a legal entity, it is not taxed. Instead, the income earned by the sole proprietorship “flows through” to the owner. The owner reports the sole proprietorship’s income/losses and expenses on his or her personal tax return by completing and filing a Schedule C with his or her Form 1040.
There are disadvantages to sole proprietorships, as well. One of the disadvantages, and likely the largest, is that the owner is personally liable for all of the debts incurred by the business. This means that if a sole proprietorship business is unable to pay back a debt, the creditor may sue the owner personally and go after the owner’s personal assets, in order to satisfy the debt. A sole proprietor is also personally liable for any business-related accidents caused by his or her employees. As is the case when a sole proprietorship fails to satisfy a debt, the owner can be personally sued for its employee’s negligence and the plaintiff can go after the owner’s personal assets.
To help decide which form of business organization is best for you, schedule a consultation with attorney Ryan Lewis.
Attorney Ryan D. Lewis offers legal services for real property tax liens, foreclosures, landlord/tenant disputes, and other real estate issues, as well as various business formation and contract issues.
Mr. Lewis has been actively involved in servicing thousands of real property tax liens. The wide-ranging real estate and litigation experience of Mr. Lewis allows him to identify and adapt foreclosure methods in order to guide the redemption process and minimize client risk. When a lien fails to redeem, Mr. Lewis is able to leverage his knowledge and skills in order to maximize asset protection and increase his client’s wealth.The post Is a sole proprietorship the best option for starting my own business? appeared first on Albers and Associates.