It is important that you consider all of your options and choose the business structure that is best for your business and situation. Nobody can advise you without knowing your specific circumstances but we can provide some basic information on the risks of running your business as a sole proprietorship.

A sole proprietorship is the default form of business in the United States. If you have income from a business that is not registered as an LLC or corporation then you are a sole proprietorship. This structure means that all income is taxed at your personal tax rate on your personal tax return. You can still deduct your expenses on a Schedule C but chances are you will be paying a higher tax rate than you would when using another business structure. Also, the other problem is that you are personally liable for all business matters. You can be sued because of debt or liability and all of your personal assets are exposed to any lawsuits.

For example, what if you hired an employee to help you out and that employee gets injured on the job? You could be sued for millions and your home and other personal assets are exposed. Also, most other businesses assume you are very small because you are a sole proprietorship and you do not get treated with the respect your business deserves.

If you do setup your business as a sole proprietorship you will still need to register with your state as DBA (Doing Business As) so you can open a bank account under the business name. Without this step people will have to write checks out to you personally which usually turns away most business. Most states also require you to obtain a license or registration to conduct business. In states such as Florida you must register at the state, county and local level. For specific information regarding the licensing requirements for a sole propietorship in your state visit the Small Business Association for a list of state licensing offices.

Another point to consider with a sole proprietorship is what happens if you die. In the case of your unexpected death, your business will die and cannot be transferred to a spouse or other heir to continue the business.

Well, sole proprietorships still have a place in which they make sense. In the case where personal liability is not a big worry. Unfortunately there are not many places where there is not much liability. What if you are marketing a product on the internet which suddenly causes a death? Could you be dragged into a law suit? I am not a lawyer but it seems that any business could be the target of a lawsuit especially with all the frivolous suits that are launched today. Even if you win the suit, just getting an attorney to protect your interests could cost you everything. Working alone and from home does not protect you from lawsuits because lawsuits can develop from many types of internet activities including  trademark infringement, violation of copyrights, bad products, bad advice, etc. 

By now you have probably guessed that this is not my favorite business structure. If you do choose to structure your business as a sole proprietorship please make sure you consult an attorney and make sure it is right choice for your business.

DISCLAIMER: I need to give the standard disclaimer that I am not a lawyer or an accountant and I encourage you to consult a business attorney and account for all of your legal and accounting advice. Any information provided in this article is not advice and Merimax, Inc. and InternetBusinessAnswers.com are not liable for any decisions you make based on this information.

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