Sole Proprietor? Really?
Believe it or not there are several advantages to the sole proprietorship other than it just being the cheapest form or business entity. Oftentimes people spend the money and go through the additional complications of setting up a corporation or LLC they haven’t weighed the benefits versus the costs associated with setting up a corporation.
The first thing you want to be sure of, is if you aren’t going to go through the expense of setting up your corporation correctly you might as well not do it at all. Most new business owners hear somewhere that they need to set up a corporation and then they look around for the absolute cheapest way to set up a corporation. However, as always, with corporation set up, you get what you pay for. If you cut corners in your setup, when it comes time to rely on the protection that a corporation is supposed to lend to you, you may not be able to hide behind your corporation because it wasn’t set up properly. So if this is you, you may want to save the expense altogether and use a sole proprietorship.
Essentially, the main reason you want to set up a corporation is if you will have some type of liability that you want to protect your personal assets from. If you will never have any real liabilities, you really don’t need a corporation. Save yourself the money and spend it on marketing to grow your business.
Another reason you may want a sole proprietorship is to take advantage of certain types of medical expense deductions. In this case, the owner of the sole proprietorship hires her husband as an employee and offers him medical coverage as a fully deductible business expense. The husband then adds his wife (the business owner) on his “employer provided” medical plan as a spouse. This is a way to make your medical expenses fully deductible that can only be accomplished through a sole proprietorship.
This can be a very extensive topic there are just too many variable to discuss fully but to make it easy for you for now, here are the people who may want to explore operating as a sole proprietorship. If any of the following apply to you, ask your tax or legal professional to validate the statements below based on your specific circumstances.
- You will not have any liability to speak of. Some network marketers will never have any real liability but, make sure. You want to fully explore your exposure as a business operator especially in today’s litigious society.
- You will never have any non-family employees.
- You will not have any substantial assets owned by the entity. I knew a free lance writer who operated as a sole proprietorship. He never had any employees, no real liabilities and therefore he thought a sole proprietorship would be a sufficient business entity, which it was until he had an article series that a publisher wanted to option as service manual. At that point his body of work became a substantial asset at which time he decided to set up a corporation and place his intellectual property into the corporation.
In simplistic terms, rarely should anyone operate as a sole proprietorship. However, don’t waste the money on a corporation if you aren’t going to build a substantial business. I’ve seen too many people refuse to start their business until all the corporation paperwork was in place and 100% legal. The problem was after spending all that money, they never did anything with the business anyway and it was a waste.
I call this the business card syndrome. Most people refuse to do anything in business until their business cards and brochures are ready. Let me give you some advice. If a business card is keeping you from moving forward in your business just stop, you don’t have what it takes to run a business. If you let something as minor as being afraid to tell a prospect “sorry I don’t have any business cards with me” keep you from starting your business, you will never make it through the real challenges when they occur, and believe me they will.
However that is a topic of discussion for another time. For now, remember the three reasons for using a sole proprietorship entity and if you don’t qualify for any of those
