Sole Proprietorship? Is It the Best Structure for You?

The sole proprietorship is probably the easiest business structure to set up. Typically you can buy the business forms you need at a local stationery store, fill them out, get them notarized and submit them at the county clerk’s office. A note of caution: because the business structure you set up has such long-term implications for your business, you need to consult a lawyer and accountant before moving forward.

The majority of small businesses are sole proprietorships. One person is in charge of the entire company and runs the day-to-day operations. The entrepreneur owns all of the assets of the business and the profits or losses generated by it. He or she also assumes all of the liabilities and debts. If the business runs up a huge loss or gets sued, the owner of the business could lose everything. As it pertains to the law, the entrepreneur and the business are one and the same. In fact, when the owner files his or her taxes, they add a "Schedule C" to their personal federal tax returns.

Sole Proprietorship: Advantages

Probably the key benefits of this form is that it is easiest to set up and to dissolve, it is probably the least expensive to set up, the owner can control the whole operation within the parameters of the law, and the owner receives all of the income.

Sole Proprietorship: Disadvantages

The key disadvantages are that the sole proprietor has unlimited liability should things not go well, which puts the business and the owner’s personal assets at risk; the sole proprietor is typically limited in the amount of funds that can be raised from banks and other outside sources and typically has to depend on his or her own funds for the business; it might be difficult to attract the best people to the operation, particularly those seeking to own a piece of the action in the future; some employee benefits may not be totally deductible from the business.

Before you take the plunge, you need to do a search on the name you wish to use. If you are going to use your own name in the business, it is best to add on to the business name what the business is about. For example, rather than going into business simply as John Smith Co., add what you do like John Smith Consulting, John Smith Detective Agency, etc.

In searching out the name you want to use, check the assumed or fictitious names file at your local county clerk’s office. Do the obvious and check your local phone book as well. Google the name to see what you come up with. Go to or and do a search of a website name you would like to use. That could be telling in itself depending on availability or lack of availability. Further, you could search the patents and trademarks database to determine in the name you wish to use has been trademarked. We strongly advise you to check with a lawyer before beginning your business to determine if a sole proprietorship is the best structure for you. While visiting the lawyer, ask him or her about searching for a name and what can and what cannot be used. This link will get you to the trademarks faq page where many of your questions will be answered. Click on Trademarks:

Jump Back to How to Start a Business Page

Business Structure Pros Cons FAQs

Start a Business in Your State

Every state has its own rules for setting up a business. If you wish to find out more about what the state you live in requires to start a business, click on the right state below for more information.

Alabama, Alaska, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington, D.C. West Virginia Wisconsin, Wyoming.