If you are a self-employed individual, then forming your business as a sole proprietorship is the most common (and also easiest) way to start your new venture. There are tax advantages and disadvantages to weigh when deciding between this and forming a corporation or limited liability company. Some people have the mistaken belief that if you employee a certain amount of people, then you must form a corporation, but this is not true. The decision has more to do with tax reasons and personal liability reasons. A sole proprietor is not recognized as a separate legal entity the way a corporation or a limited liability company is.
For instance, if you are a Sole Proprietorship, then you pay taxes only once, as if you and the business are the same entity. You will also be personally responsible for paying all the business debts you incur. Bear in mind that business debts can be satisfied with your personal assets as well. This can be very scary to a lot of new business owners, and many cite this fact as the deciding factor in electing to incorporate or form an LLC.
Another distinction between these types of businesses are that a corporation will be subject to taxes on that entity's behalf, as well as the owner paying taxes as well. Many refer to this as double taxation. A corporation will, however, shield the owners from personal liability in the case of a lawsuit or satisfying other business debts. This is called the protection of the Corporate Veil, and many people desire this, especially if they are involved in very profitable, or very risky ventures.
Some additional advantages of sole proprietorships are that these individuals will have a much easier time with their accounting records. Also, the IRS does not require a separate corporate filing at tax time. The cost of forming the business will be a little less as well, because the state will not require Articles of Incorporation or other registration papers to be filed.
Please seek further advice from your tax professional, but generally speaking, if you have no plans to grow a larger venture, then the decision to remain a sole proprietor will probably suit your business needs.
For instance, if you are a Sole Proprietorship, then you pay taxes only once, as if you and the business are the same entity. You will also be personally responsible for paying all the business debts you incur. Bear in mind that business debts can be satisfied with your personal assets as well. This can be very scary to a lot of new business owners, and many cite this fact as the deciding factor in electing to incorporate or form an LLC.
Another distinction between these types of businesses are that a corporation will be subject to taxes on that entity's behalf, as well as the owner paying taxes as well. Many refer to this as double taxation. A corporation will, however, shield the owners from personal liability in the case of a lawsuit or satisfying other business debts. This is called the protection of the Corporate Veil, and many people desire this, especially if they are involved in very profitable, or very risky ventures.
Some additional advantages of sole proprietorships are that these individuals will have a much easier time with their accounting records. Also, the IRS does not require a separate corporate filing at tax time. The cost of forming the business will be a little less as well, because the state will not require Articles of Incorporation or other registration papers to be filed.
Please seek further advice from your tax professional, but generally speaking, if you have no plans to grow a larger venture, then the decision to remain a sole proprietor will probably suit your business needs.
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