One advantage of starting a sole proprietorship is the simplicity of formation. Very little paper work is required if you choose to file your business name. In most cases, you can visit your local courthouse and complete a "Doing Business As" or a fictitious name form to operate under your business name. A small fee is required for completing the paperwork. You are then given a certificate with the name of your business. Use the certificate to open bank accounts and apply for business credit cards. Unlike other business structures, individuals owning sole proprietorships are not required to file annual reports or legal documents required by some other business structures.
The sole owner of a sole proprietorship possesses all of the authority to make decisions on behalf of the company. Full ownership and management control is another advantage of owning a sole proprietorship. Owners are not required to attend formal meetings required of owners and members of other business structures. With a sole proprietorship, the owner can decide to sale or transfer the company to another individual and make important business decisions at his discretion.
Another advantage of forming a sole proprietorship is the taxation rules established by the Internal Revenue Service. Sole proprietors are not required to file separate tax returns for their business. Income made from the business is counted as personal income and owners pay taxes according to their individual tax rates. Sole proprietors must pay Social Security and Medicare taxes as well. The tax rules regarding sole proprietorships allow owners to avoid the double taxation of corporations. The IRS allows sole proprietors to take deductions on business expenses, which lowers owners’ taxable income amount.
Changing Business Structures
If your business grows to a place that the business structure of a sole proprietorship no longer works to your advantage, you can easily change your...