What is a Sole Proprietorship?
A sole-proprietorship is a business that is owned by one person or by a husband and wife. Unless the business is formed as a corporation or a limited liability company, it will be a sole-proprietorship by default. One of the biggest advantages of operating a business as a sole-proprietorship is that it does not require that the business owner comply with statutory requirements regarding decision-making. This differs from a corporation where state statutes require shareholder’s meetings, the election of a board of directors and officers, and directors’ meetings. For many small business owners, the statutory requirements of operating a business as a corporation are just too cumbersome. After all, they are far too busy running the business to have meetings for the purpose of granting themselves the authority to run the business. The biggest drawback to operating a business as a sole-proprietorship is the potential for personal liability.
A sole proprietorship is a business owned by only one individual and does not offer limited liability to the owner. A sole proprietorship is not considered a separate entity for tax or legal purposes. The owner of a sole proprietorship must file their business name with the Minnesota Secretary of State if the business name is different than the owner’s name.
The Sole Proprietorship is the most common form of business structure. The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibilities for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business. Tax Considerations for sole proprietorships If you are a sole proprietor, you pay personal income tax on all revenue generated by your business. You also assume all the risk of the business. Any income or losses are claimed on the owner’s personal tax return each year. Business deductions are permitted. As a sole proprietor, your income tax and benefit return must include financial statements or one or more of the following forms, as applicable: * Form T2124, Statement of Business Act
A sole proprietorship is the simplest form of business entity. In a sole proprietorship there is only one owner (the sole proprietor) who operates in his or her personal capacity. The sole proprietor risks unlimited liability for the debts and obligations of their company. This means that all of the sole proprietor’s personal possessions are at risk if the business should fail or be sued. One benefit of a sole proprietorship is that it enjoys a single level of taxation. This means that the sole proprietor will pay personal income taxes for the profits made by the business.
