By Mark Oldberg: June 8, 2015: Blog

 

My next series of posts on how to start a business will walk you through Choosing a legal business structure. In this series I am going to walk through each type of business structure 

When you decide to start a business one of the first things you must decide is what legal structure your business will utilize. There are many different choices for legal entity and even some special ones if you are a certain kind of business. Our first stop is the Sole Proprietorship.

 

Sole Proprietorship

A sole proprietorship is just you doing business. It is the most basic form of business entity. A child that puts up fliers around the neighborhood and rakes leaves for money is a sole proprietorship. While the requirements on the front end are very easy, it can come back to bite you down the road. 

Filing Requirements

A sole proprietorship has no state filing requirements. The only requirement is if you want to use a business name. If you want to brand your business by something other than your name you must file a fictitious name or doing business as (dba) certificate. Check with the locality where your business will be located to learn where to file your form. You will also still be required to get a business license also through your locality. 

Liability

The sole proprietorship structure offers no legal protection from liability, so you will be personally exposed to all the debts and potential lawsuit judgments against your business. The lack of protection is the big disadvantage of this structure. If someone sues your business you will personally be liable. That means they can come after your house or personal bank accounts. Honestly it is not worth the risk. 

 

You may choose to go this route for its simple ease of setting up, but remember that it offers no liability protection. I will say that it is my recommendation for nobody to ever operate a business as a sole proprietorship. When a business is formed it should always be a limited liability structure. Protect yourself. Stay away from the sole proprietorship. 

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• Forming a Business
• Choosing a Business Entity