Trying to select the perfect way to organize your business is challenging. With so many choices, you can feel too overwhelmed with information to make a good decision. One of the most popular ways for a small business to organize is as a sole proprietorship.[1] Although there are many advantages to forming under this structure, there are also some disadvantages. Here is what you need to know about sole proprietorships in Florida.
What Is a Sole Proprietorship?
A sole proprietorship is when one person owns and runs a business. Under this form of organization, there is no distinction legally between the individual and the business.
Advantages of a Sole Proprietorship
There are several advantages to organizing as a sole proprietorship.
- Simple;
- Less formal paperwork;
- Fewer administrative costs;
- No corporate taxes because any profits go directly to you.
Disadvantages of a Sole Proprietorship
Risk
If your business were incorporated, you would have some protection from personal liability in a lawsuit because of the “Corporate Veil.”[2] When you operate as a sole proprietorship, the business is not legally separate from you and so you are likely to be personally liable for any judgment.
No Deductions for Business Expenses
When your business is incorporated, there are tax advantages that you can use to incur business costs that are not treated as income. Not incorporating may limit the deductions that you can claim.
Responsibility
As a sole proprietor, you have to be ready to perform all the roles in your business, or hire others to fill areas of need.[3] You bear the full weight of the responsibility for the business. If you, or any of your employees, incur debt, that is also your personal responsibility. In some other business organizations, the business and the owner are listed as two separate entities; and the individual does not incur the debt of the business. This is not the case with sole proprietorships.
Stress
Being the only owner and decision-maker for your business can be very stressful and difficult without partners to share the workload and brainstorm ideas.
Decreased Prospect of Investment
This business structure does not appeal to investors. For this reason, if you are hoping to attract investors for your business, you might consider choosing an alternative business structure.
Find Help
Deciding which business structure is best for you and your company is challenging. Let J. Muir & Associates help you. Our experts are ready to answer any questions and help you decide on the best way to organize your business. Give us a call today at 786-533-1100 or contact us online.
Miami Business Lawyer here in J.Muir and Associates is the best lawyer in Miami FL.
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