A sole proprietorship is the most basic business structure. It is a business owned and operated by an individual who is the sole owner. One individual owns and operates the business. Sole proprietors do not have any legal identity other than the business they’re operating. They generally must be a “real” person. Many small businesses start as sole proprietorships. Often, the entrepreneur starts the business and names it after themselves, e.g., Smith Lawncare; Williams Plumbing & Heating; or Garcia Electrical. Other owners name their business to describe their product or service, or create a brand, and don’t use their own names, e.g., Best Darn BBQ; Paisley Productions; or Get Fit Gym.
In Illinois, if you choose to conduct business as a sole proprietor and do not use your real name, you must register the name of the business as an assumed name with the County Clerk of the county where your primary business office is located. You must provide your full name and address of the primary location of the business and any other locations where you conduct business. After filing with the County Clerk, you must place a notice in a newspaper of general circulation published within the county in which the certificate is filed for three consecutive weeks. The first publication must be within 15 days of filing the certificate with the County Clerk. Proof of publication must be provided to the County Clerk within 50 days from the date of filing the certificate. Once the clerk receives proof of publication, they will give you a receipt as proof of filing. If you change the name of the business or the address of the business, you must notify the clerk of the change. If you form your business as any of the remaining entities discussed below, you do not need to file the assumed name with the county. See 805 ILCS 405, Assumed Business Name Act.
A sole proprietorship is best suited for a simple business with minimal risk including part-time businesses, direct sellers, contractors, consultants, or new start-ups when the owner wants to test their ideas before creating a more formal business structure. If the business is sued, the owner is personally liable for all costs and judgments against the business. An adverse judgment against the sole proprietor could force the owner into personal bankruptcy.
As the owner, the sole proprietor is personally liable for all the business’s debts, tax liabilities, and other obligations. When a sole proprietorship fails, the assets and liabilities are transferred to the owner. Even without adverse legal actions, a failed business could force a sole proprietor into personal bankruptcy.
Tax filing for the sole proprietorship is easier than other forms of business classification. The owner simply includes the profit or loss from the business on their personal tax return using the IRS Form 1040. Since the sole proprietor works for themselves, self-employment taxes will be included in any amount that may be owed to the government.
If you are currently operating as a sole proprietorship or considering beginning your business as one, think about the potential liabilities your business could incur. Make a list of worst-case scenarios that could happen to your business and try to give them a monetary value. Once you have that total amount, you can better determine whether you should continue as a sole proprietorship. You can also use that value to make sure you have adequate insurance to help mitigate the risks you have as a sole proprietor.
Comentaris