Nexym
  • Business
  • Finance
  • Technology
  • Health
  • Life
  • More
    • Auto
    • Food
    • Health
    • Home
    • Space
    • Travel

Subscribe to Updates

Get the latest creative news from FooBar about art, design and business.

What's Hot
Flywheel Logo

Flywheel review in 2023

June 8, 2023
The all-electric F-150 Lighting has a lot to offer for road trips. Find out more about its capabilities and features here!

Why Ford’s electric F-150 Lightning is excellent for road trips

September 9, 2023
If you're looking for the best outdoor lounge chairs, look no further than Amazon. We've compiled a list of the top-rated options to make your decision easier.

The best outdoor chairs you can find on Amazon

September 9, 2023
Facebook Twitter Instagram
Nexym
  • Business
    protectteamabusivecustomers featureimage min

    How to protect your team from an abusive customer

    September 7, 2023
    Learn the skills you need to become a great content writer. From writing, editing, and researching to storytelling and creative thinking.

    Top skills you need to become a great content writer

    August 20, 2023
    featured business

    How to see the bigger picture in business

    August 9, 2023
    What is a corporation? What does it mean to be incorporated? How do you start one? Read the definition of corporation, learn the different types of corporations and how to incorporate them.

    What is a corporation? Definition, meaning, types and more

    August 8, 2023
    Many people dream of creating a Starbucks coffee shop chain. Here are three alternatives for how to open a Starbucks franchise in your city.

    The best alternatives to opening a Starbucks franchise

    August 4, 2023
  • Finance
    Find out more about the tax implications of your retirement income based on your yearly taxable earnings.

    Do you pay taxes as a retiree if you earn extra money?

    September 9, 2023
    Learn areas to reduce or eliminate your tax obligation when you receive a settlement.

    How to decrease or eliminate your tax burden on lawsuit settlements

    September 8, 2023
    Learn about the IRS TREAS 310 deposit refund from Social Security and how it relates to your tax return.

    What is a Social Security IRS TREAS 310 deposit?

    September 8, 2023
    Find out what's holding up the tax return process and how you can get access to your money faster.

    Learn why your tax return money is delayed

    September 3, 2023
    Want to experience Singapore Airlines' first class without spending a fortune? Here's how!

    How to book Singapore Airlines’ best first-class seat for cheap

    August 26, 2023
  • Technology
    Flywheel Logo

    Flywheel review in 2023

    June 8, 2023
    Find out how the Xbox Series S compares to more advanced alternatives! We'll tell you everything you need to know, including specs and features.

    How Xbox Series S compares to more advanced alternatives

    September 9, 2023
    How to embed Tik Tok

    How to embed TikTok videos into your WordPress website

    September 7, 2023
    reviewsitewp featureimage min

    How to build a review site in WordPress

    September 7, 2023
    Choosing color scheme for your website

    How to choose the perfect color scheme for your WordPress website

    September 7, 2023
  • Health
  • Life
    Find out which New Balance running shoes are best for your foot type, and how to match them with the other features you're looking for in a shoe.

    5 of the best New Balance running shoes for each foot type and need

    September 9, 2023
    If you're looking for a stylish and comfortable athletic swimsuit fitted for large breasts, check out our list of the top 10 athletic swimsuits.

    The 10 best athletic swimsuits for larger chests

    September 4, 2023
    Learn about the recent rate hikes by Verizon and AT&T, what this means for consumers and how to keep your cell phone bill in check.

    Inflation has finally caught up with cell phone bills – Verizon and AT&T new increased rates

    September 3, 2023
    Spring is almost here, and Walmart has got you covered with the latest trends! Check out these fabulous finds that won't break the bank!

    Surprise! Walmart has awesome spring fashion items

    August 28, 2023
    Find the perfect birthday messages and quotes for a special friend. Share them with your best friend on their birthday!

    28 creative birthday wishes for your best friend

    August 26, 2023
  • More
    • Auto
    • Food
    • Health
    • Home
    • Space
    • Travel
Facebook Twitter Instagram
Trending
  • Flywheel review in 2023
  • Why Ford’s electric F-150 Lightning is excellent for road trips
  • The best outdoor chairs you can find on Amazon
  • Check out these discounts for 7 all-inclusive Caribbean resorts
  • Here are the best shoes for travel and airports
  • 5 of the best New Balance running shoes for each foot type and need
  • Do you pay taxes as a retiree if you earn extra money?
  • The best liquid eyeliners of 2023
Nexym
Home » Business
Business

What is a sole proprietorship? Sole proprietorship definition

Anna-Liisa LygiaBy Anna-Liisa LygiaJuly 28, 20239 Mins Read
Facebook Twitter LinkedIn Reddit Telegram WhatsApp Pinterest Email
A sole proprietorship is a business organization in which one person owns and operates the business. Learn how to create a sole proprietorship to start your own business.
What is a sole proprietorship?
Share
Facebook Twitter LinkedIn

The first step at the beginning of a business is to decide whether or not you want to be your own boss.

However, if you are going into entrepreneurship with little knowledge about what it takes and how long it will take, consider starting as a sole proprietorship.

A sole proprietor has much less liability than someone who starts as an LLC (Limited Liability Company) because there’s no limit on their personal assets.

Sole proprietorships are the most common business form in America, used by about 75% of small businesses.

What is a sole proprietorship?

A sole proprietorship is an unincorporated business with just one owner who pays personal income tax on profits earned from the company.

The owner of a sole proprietorship is also subject to self-employment taxes, which are higher than those paid by other types of businesses. On the other hand, there is no limit to how many people can be employees or partners in a sole proprietorship, and it does not need to pay payroll taxes or provide benefits for its workers.

The sole proprietorship business structure has many benefits and low startup costs because there are no regulations for starting up and taking down companies in general.

The sole proprietorship is the most common business entity in America. It doesn’t require a filing process or fees to start up, but if you don’t plan to use your own name as the company’s, you will need to register a DBA with your state registrar.

Sole proprietorships are different from corporations in that there’s no need for a separate entity. A sole proprietor usually does not have access to funds, but the business can still be taxed on its income and expenses.

Additionally, all profits belong solely to the business owner and are treated as personal assets; this means they cannot be touched by creditors or other third parties without court-ordered permission being granted through bankruptcy proceedings.

Sole proprietorships vs. LLCs

Sole proprietorships are different from LLCs (Limited Liability Companies) in that sole proprietorship is a business entity owned only by one person. A few significant differences exist between the two types of entities, such as handling taxes and liability issues. An LLC can be set up for any number of owners with specific legal rights like shareholders or members.

In the US, the average cost to create a sole proprietorship is around $1000 compared to the $2000 to $3000 it takes to start an LLC because setting up a sole proprietorship is cheaper and more straightforward.

An LLC is a business entity that shields the owner from personal liability, and it has its own debts. The company can be sued and file for bankruptcy without impacting the individual’s assets or liabilities.

Sole proprietorships are taxed under the individual tax system, which is more straightforward than an LLC concerning taxes. However, some benefits come from having ownership of an LLC, such as flexibility in how you can be taxed and what type of taxation structure you want your business to have.

Leading a sole proprietorship can be more complicated than with an LLC or corporation because you must report profits on individual tax returns instead of corporate ones.

Sole proprietorships vs. partnerships

A sole proprietorship is a business organization in which one person owns and operates the business. Learn how to create a sole proprietorship to start your own business.
Sole proprietorship vs Partnerships

A partnership is a sole proprietorship that multiple people own, and every partner shares the business and files taxes on their returns.

Sole proprietorships and partnerships exist on a spectrum. LPs are more formal than LLCs, but they also have the same flexibility as corporations in terms of liability protection.

Each member of a partnership must sign a partnership agreement. This agreement, which you created with the assistance of a lawyer, establishes the percentage of ownership each partner has in the business.

This is critical in terms of liability. As with a sole proprietorship, a partnership is tax-wise similar to the individuals who manage it. Each member discloses firm revenue and costs on their personal tax forms.

Additionally, unlike an LLC, a partnership does not provide liability protection (unless it is a limited liability partnership). Sole owners should file their taxes quarterly to avoid incurring IRS costs and penalties.

Because no taxes are deducted from your income, quarterly tax payments also ensure that you do not owe a large sum of money at the end of the year. Sole owners must file Schedule C with their 1040 to record their company revenue and costs.

Your business’s profits and losses are moved to your personal tax return via Schedule C. Additionally, you must submit the Schedule SE form, which assesses your self-employment tax liability. Ensure that you adhere to the IRS’s filing requirements.

Doing business as a sole proprietorship

A sole proprietorship is a business owned by one individual and has no other owner. It can be formed in most states with minimal paperwork, making this the most straightforward option for new businesses.

This type of entity would be helpful for a business with just one owner and a few employees, as it can make things easy to do. However, this type of entity comes with some restrictions in terms as well: the liability protection isn’t very adequate if there are many owners/shareholders involved or the company operates on any level outside its country’s borders.

An LLC may offer better tax benefits than an S-Corp when multiple owners are involved. However, this type of entity has many more restrictions and may not be ideal for all businesses.

To set up a sole proprietorship, it is necessary to have your bank account with enough money available. You also need an address where you do business because many states require them as part of their state registration requirements; once established, no further filings or fees are required to operate.

A sole proprietorship can be a good option for people who own property and want to do something with it and those who want to start their business from home or another convenient location.

As a sole proprietor, you are subject to pass-through taxation. This means that the profits or losses of your business will be recorded on your tax return without being taxed at the company level. You also have to pay self-employment taxes and any payroll taxes owed for employees under state laws and federal regulations about employing people who work for you.

A sole proprietorship does not receive salaries because one individual owns it – an owner may hire contractors, but the company is still a sole proprietorship.

Taxes for sole proprietorships

A sole proprietorship is a business organization in which one person owns and operates the business. Learn how to create a sole proprietorship to start your own business.
Taxes as sole proprietor

A sole proprietor is an individual who owns a business and reports income and expenses on their tax returns. Sole proprietors pay taxes based on their profit, which is determined by how high or low their tax bracket is.

For sole proprietors, “business” is a legal entity that doesn’t pay taxes – they instead pay tax on their individual income. Sole proprietors must pay self-employment taxes, and this tax is 15.3% of net income. This can be advantageous because it minimizes business expenses and allows for greater personal spending flexibility. Still, there are also drawbacks, such as paying higher interest rates than businesses without SBEs (Small Business Enterprise certified).

Sole proprietors will need to make quarterly estimated tax payments if they expect to pay $1,000 or more in taxes. They must calculate their income and expenses based on a percentage of the total number of days under the quarter.

Advantages of a sole proprietorship

  1. A sole proprietorship is a business owned by one person (you!), and it’s taxed as the owner’s income. The benefits of this include that there are no taxes to be paid on profit, you can deduct expenses from your income, and you have the option of deciding how much tax to pay on what type of profits.
  2. According to the SBA, it’s the simplest and least expensive type of business. The simplicity means you can maintain it quickly with little effort and enjoy some tax benefits such as depreciation on purchases or losses due to theft or natural disaster.
  3. It’s easier to start up than a registered LLC or corporation, but it also means there are minimal requirements with filing documents, which may be beneficial for your startup.
  4. Other advantages include ease of use, minimal record-keeping requirements, and the ability to run a company under your name.
  5. An additional advantage of a sole proprietorship is that it allows you to enjoy the benefits of being your boss without having to worry about finding and managing a partner.

Disadvantages of sole proprietorships

A sole proprietorship is an unincorporated business that has only one owner. It does not create a separate legal entity and is the simplest form of business structure in the United States, with few formalities to comply with.

The risks associated with this type of business include unlimited personal liability, lack of protection against creditors or employees, and limited tax deductions.

Additionally, the owner of a sole proprietorship must use their personal assets to repay outstanding debts or other financial obligations. This makes it hard for individuals with little to no collateral and high debt levels because they are not protected against insolvency risk by an entity such as a corporation.

Sole proprietorships are limited in terms of the capital-raising process. They cannot sell equity to get new funds, which means they have difficulty acquiring more money and expanding their operations.

There is also little protection for sole proprietors against fraud because they’re not incorporated entities with directors and officers that serve as fiduciaries.

Final thoughts

A sole proprietorship, also known as an unincorporated business or simply a small business, is the simplest type of corporation. It’s not taxed by the government and doesn’t need to report its profits to shareholders.

Without any requirements for legal formalities like meetings, annual reports, or filings with governmental agencies such as tax authorities in every state that sell stock shares into public marketplaces (such as the NASDAQ), it’s easy enough to start a sole proprietorship.

People also viewed:

Are you looking for a new way to bring income into your life? These 8 online business ideas are perfect if you're just starting out.8 online business ideas you can start now A brief explanation of what partnerships mean in the business world, and how to develop them properly.Partnerships – an important business relationship explained Learn everything you need to know about what a corporation is, how it works, and the benefits of incorporating your business.What are corporations? An important business structure explained A business plan is a document that outlines the features and functions of an organization and its activities, as well as the projected financials. It is often used to attract investors or secure funding for the company.How to write a business plan step-by-step: A complete guide for 2023 Start an import export business from home. Learn how to start a successful import export business using the steps in this guide.How to start an import export business from home in 2023 – step by step guide
define sole proprietorship sole proprietor sole proprietorship sole proprietorship definition
Share. Facebook Twitter LinkedIn Reddit Telegram WhatsApp Pinterest Email
Previous Article10 safe investments with high returns in 2023
Next Article The 30 best one-hit wonders of all time
Anna-Liisa Lygia

Anna-Liisa is a Nexym Business writer and has served in the founding team of various startups. She is passionate about business operations and scaling models to grow companies into international brands. She enjoys international travel and speaks 6 different languages.

Related Stories

A business plan is a document that outlines the features and functions of an organization and its activities, as well as the projected financials. It is often used to attract investors or secure funding for the company.

How to write a business plan step-by-step: A complete guide for 2023

April 5, 2023
Learn everything you need to know about what a corporation is, how it works, and the benefits of incorporating your business.

What are corporations? An important business structure explained

April 1, 2023
A brief explanation of what partnerships mean in the business world, and how to develop them properly.

Partnerships – an important business relationship explained

April 1, 2023
Are you looking for a new way to bring income into your life? These 8 online business ideas are perfect if you're just starting out.

8 online business ideas you can start now

March 29, 2023

Comments are closed.

Connect
  • Facebook
  • Twitter
  • Pinterest
  • Instagram
  • YouTube
  • LinkedIn
  • Reddit
  • TikTok
Don't Miss
Flywheel Logo Reviews

Flywheel review in 2023

By Matthew Drummond

Flywheel is a fast-growing web host that offers high-performance WordPress hosting for agencies, designers, and developers.

The all-electric F-150 Lighting has a lot to offer for road trips. Find out more about its capabilities and features here!

Why Ford’s electric F-150 Lightning is excellent for road trips

September 9, 2023
If you're looking for the best outdoor lounge chairs, look no further than Amazon. We've compiled a list of the top-rated options to make your decision easier.

The best outdoor chairs you can find on Amazon

September 9, 2023
Planning a vacation to the Caribbean? Check out these seven all-inclusive resorts that are offering steep discounts.

Check out these discounts for 7 all-inclusive Caribbean resorts

September 9, 2023
  • Auto
    • Auto Reviews
    • Electric
    • Insurance
  • Business
    • Company
    • Government
  • Entertainment
    • Movies
    • Music
  • Finance
    • Credit Cards
    • Crypto
    • Market
    • Personal Finance
  • Food
    • Coffee
    • Drinks
    • Holidays
  • Health
  • Beauty
  • Fitness
  • Food
  • Medical
  • Home
  • Backyard
  • Bathroom
  • Bedroom
  • Cleaning
  • Furniture
  • Home Office
  • Kitchen
  • Life
  • Astrology
  • Family
  • Fashion
  • Outdoors
  • Personal
  • Pets
  • Apple
  • Audio
  • Domain Names
  • Gaming
  • Google
  • Power
  • Reviews
  • Samsung
  • Destinations
  • Gear
  • Services
  • Space
  • Tourism
  • Technology
  • Tutorials
  • Web Hosting
  • WiFi
  • WordPress
  • Travel
  • Shopping
  • Sports
  • Work
  • Stocks
  • Television
  • Web Hosting
Facebook Twitter Instagram Pinterest YouTube LinkedIn Reddit TikTok
© 2023 Nexym Media

Type above and press Enter to search. Press Esc to cancel.