Budding entrepreneurs have to choose a business structure for their new ventures. In Virginia, they can choose from a number of business entity types, including corporation, general partnership, limited liability company, limited partnership, and the sole proprietorship. New business owners need to review the pros and cons of sole proprietorships, as well as the other business structures. Which one will best meet your current and future needs?
Full Speed Ahead
When looking at the pros and cons of sole proprietorships, you’ll see a number of good reasons to form a sole proprietorship:
- It’s considered the easiest and least expensive entity to form. Most states do not require sole proprietors to register or pay any formation fees. One exception to this is that the business owner may need to file a DBA statement (that’s DBA – doing business as). For example, Mary Smith may open a bookstore as a sole proprietor. However, she chooses to call the bookstore Main Street Books. She would need to make sure the name was not already being used, then file a DBA Statement.
- With only one owner, management is easy – there’s no one to disagree with you.
- Sole proprietors enjoy fairly low tax rates.
- Preparing tax returns is easier than some of the other business entities.
Nothing is perfect, however. Sole proprietors do face some negatives.
Putting the Brakes On
Still looking at the pros and cons of sole proprietorships, you’ll notice a few disadvantages to the sole proprietor business structure:
- The sole proprietor’s personal assets typically are vulnerable – there’s no personal liability protection. The owner is personally liable for all business obligations.
- While there’s no other partner or board member to disagree with a sole proprietor, there’s also no one to shoulder some of the management burdens.
- Funding is limited. It can be very difficult for sole proprietorships to convince a lender to provide the money they need for operation or expansion.
- The success of the sole proprietorship belongs to the owner. So does the failure.
Forming a sole proprietorship may seem easy. However, you may still have to comply with federal, state, and local laws.
Considering the Pros and Cons of a Sole Proprietorship?
Start your business off on the right foot. Talk to the attorneys at Dillon Law Group, PLC. Please contact us at 757-962-4796 to set up an appointment or use the Contact Form on our website, https://www.dillonlawgrp.com/. Our offices are located in Virginia Beach and Newport News.