A sole proprietorship is a business owned and managed by one individual who is personally liable for all business debts and obligations.

Sole proprietorships are the most common – and simplest – form of business organization. Sole proprietorships are owned by one person who is generally also responsible for the business’s day-to-day operational responsibilities. Sole proprietors operate in many different capacities, including full and part-time businesses, individually run businesses or those with employees, and traditional, home-based, or online businesses in all different industries. Sole proprietors own all assets and profits of the business and also assume complete responsibility for business liabilities and debts.

Forming a Sole Proprietorship
Unlike other business structures, when forming a sole proprietorship, you do not need to register your business with the state. Starting a sole proprietorship is often as simple as selecting a business name and obtaining appropriate licenses and permits. Check with your state business entity registration office to be sure that you’ve satisfied all local requirements.

Many states require a sole proprietor to operate under their personal name unless they formally file a trade name, or a “Doing Business As” (DBA) name.

Next, you must obtain business licenses and permits. Regulations vary by industry, state and locality. Use the Licensing & Permits tool on Business.gov to find a listing of federal, state and local permits, licenses, and registrations you’ll need to run a business.

If you are hiring employees, read more about federal and state regulations for employers.

How Sole Proprietorships are Taxed
Most businesses will need to register with the IRS and state and local revenue agencies, and receive a tax ID number or permit.

Sole proprietors file their business taxes on their personal income tax returns. When filing, owners must clearly keep personal and businesses finances separate. Since the two are so closely intertwined, this is often difficult, but it’s important for all sole proprietors to maintain accurate business records.

Tax Forms for Sole Proprietors:
Sole proprietors file Schedule C or Schedule C-EZ, Profit or Loss from Business, with their Form 1040.

In some cases, additional forms are required for sole proprietors:

Self-Employment Tax – For individuals who work for themselves, this includes a social security and Medicare tax. The IRS Guide to Self-Employment Tax has more information on paying this tax.
Estimated Tax – Used to pay tax on income that is not subject to withholding. Sole proprietors generally must pay estimated taxes for $1000 or more when filing their return. The IRS Guide to Estimated Taxes has more information on calculating and completing these forms.
The IRS guide to Federal Tax forms for Sole Proprietorships provides these forms and instructions regarding their use.

Advantages of a Sole Proprietorship
Easy and Inexpensive. For inexperienced entrepreneurs, sole proprietorships are a practical incorporation option – they are generally the least expensive and simplest business structure. Similarly, they are also easy to dissolve if the business does not go as planned.

Control of Operations. Sole proprietors are in complete control of their business. Within the parameters of business laws and regulations, owners have the right to make all operating decisions regarding their business as they see fit..

Receive and Allocate Income. All income generated by a sole proprietorship is received by the owner to keep or reinvest according to their discretion.

Disadvantages of a Sole Proprietorship
Unlimited Liability. With the privilege of total control, sole proprietors also assume liability. Owners are legally responsible for their business’s financial obligations, meaning your personal assets can be used to help satisfy debt incurred by the business.

Funding Difficulties. Sole proprietorships are often at a disadvantage when it comes to raising capital. Because sole proprietorships tend to start small and can be relatively unstable, investors are typically not drawn to them. Start-up capital is often limited to a combination of personal assets and loans.

Attracting Employees. Sole proprietorships tends to be less attractive to prospective employees because they generally do not offer as many employment benefits. There is also no chance of ownership potential, which may turn off driven workers. For more information about Sole Proprietorships, visit our website at www.staging-americancorpenterprises-staging.kinsta.cloud

American Corporate Enterprises, Inc. – Entity Types: “Limited Partnership
This particular entity has basically the same attributes as a General Partnership except for one very important distinction: It has Limited Partners who usually do not have liability for business management responsibilities. Find out more about LPs by visiting our website at https://americancorpenterprises.com/types_lp.html”

American Corporate Enterprises, Inc. – Entity Types: “S Corporation
The S Corporation also offers the limited liability factor, but is also not a taxable entity at all. However, while the S Corporation is not taxed, the profits it generates, whether distributed or not, is taxable to the shareholders at their own personal tax rate. Find out more about S-Corps here”

American Corporate Enterprises, Inc. – Entity Types: “Limited Liability Company
In recent years this relatively new business entity (new compared to corporations that is) has generated a substantial amount of interest due to the fact that it provides both the limited liability of a Corporation and the single level pass through taxation of a Limited Partnership. Find out more about LLCs…”

American Corporate Enterprises, Inc. – Why Incorporate?:
Because of the length of time corporations have been in existence, there is a long record of statutory and case law which supports the use of a corporation for asset protection.
Consequently, corporations are traditionally considered for use as the “First Line of Defense” to accomplish the goal of limited liability. Following are some important attributes and advantages to a corporation which allow it to be used for limited liability as well as other purposes.”

•The corporation is a totally separate entity from any individual- it is not you, and you are not it. This is important to remember in maintaining the limited liability protection. It must be treated as a separate individual
•A corporation can buy, sell, trade, own property, own stock, make loans, etc. and anything else that an individual can do; such actions are governed by the Board of Directors
•The shareholders of the corporation do not have to live in the state in which the corporation is domiciled. Fortunately, here in Nevada, neither do the Officers or Directors
•Corporations have perpetual existence- if a Director or Officer becomes deceased, the corporation will still exist, unlike with some other entities
•There are many tax deductions available to corporations, which are not available to other entities
•It is easy to transfer assets and ownership of a corporation
•Centralized management allows ease of doing business
•Full fringe benefits can be established through a corporation
•A corporation has all of the rights of an individual except for the Fifth Amendment
Please be advised that we are not engaged in rendering legal counsel or accounting services. If legal advise, or other such services and assistance is required, the services of a professional person in that area should be sought. At your request, however, we may consult with you and render our opinion based on our business experience.

American Corporate Enterprises works with and provides services to Attorneys, CPAs, Financial Consultants, etc. in order to meet the needs of our clients. We would be happy to refer you to such a professional at your request.

Find out more about American Corporate Enterprises by visiting our website at https://americancorpenterprises.com.