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Understanding sole proprietorships

For many people, the notion of “going into business for themselves” probably seems like an inherently complex, intimidating, or even impossible undertaking. After all, there would be demand to generate, production to manage, orders to fill, and a host of other arcane tasks that only an MBA or experienced entrepreneur would seem equipped to handle.

While this mindset is understandable, it may come as a surprise to many people to learn that starting a business might be easier than they imagine or, perhaps even more surprising, that they may have taken this step already.

The sole proprietorship    

At its core, a sole proprietorship is an enterprise owned and operated by one person, meaning the two are indivisible in the eyes of the law. In other words, there’s no legal distinction between the owner and business, such that the sole proprietor derives all the profits, but is also responsible for all liabilities.

One of the fascinating features of sole proprietorships is that no formation is really required. As such, a person who works as a freelance writer or website designer is actually already considered a sole proprietor. Indeed, the only reason a person would need to register as a sole proprietorship here in Oregon would be if they planned to use an assumed business name (i.e., a fictitious name).

The pros

Outside of avoiding the time, money and energy necessitated by formal registration, one of the primary advantages of forming a sole proprietorship is that you have complete autonomy when it comes to management. Furthermore, you don’t have to worry about any special tax considerations, as the business is not treated separately for state and federal tax purposes.

The cons

As you can probably surmise, one of the primary disadvantages of organizing as a sole proprietorship is the unlimited personal liability, which means that you are personally liable for any debt/obligations incurred by the business. Furthermore, while you have complete managerial control, it also means the long-term success of the business rests squarely on your shoulders.

If you have questions about sole proprietorships or business formation in general, consider speaking with a skilled legal professional who can explain the law, answer your questions and help you pursue viable solutions.

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