How Many Owners Does a Sole Proprietorship Have: Everything You Need to Know
How many owners does a sole proprietorship have is a common question asked by entrepreneurs and business owners. The simple answer here is one. A sole proprietorship is a business that is formed by one person who acts as the sole owner and operator of the business.3 min read
How many owners does a sole proprietorship have is a common question asked by entrepreneurs and business owners. The simple answer here is one. A sole proprietorship is a business that is formed by one person who acts as the sole owner and operator of the business. It is an unincorporated business in which the sole owner pays personal taxes on the company’s profits and losses.
Sole Proprietorship: An Overview
A sole proprietorship has very little government regulation. As such, it is the easiest type of business to set up, which is why it is so popular among contractors, consultants, and small business owners. The sole proprietorship can have its own business name or operate under the name of the owner. An example of this would be the owner creating a Doing Business As (DBA), i.e., John Smith DBA, Apple Farms. The fictitious name is really a trade name that the owner can use to open a business bank account under the DBA. However, a lot of sole proprietors open separate personal bank accounts in their own name to hold business assets.
Alternatively, the owner can create a business name, i.e., Apple Farms, but keep in mind that this business name does not separate the owner from the company. The sole proprietorship does not operate as a distinct legal entity from its owner. Unlike the corporation or LLC, the sole proprietorship doesn’t offer personal liability protection. Therefore, if a plaintiff or creditor file suit against the owner for outstanding debts, the court will take the owner’s personal assets to satisfy the debt.
Sole Proprietorship Requirements and Ongoing Maintenance
If the owner chooses to cease operations, he can either sell the business or simply stop doing business altogether. But, as previously noted, if there are any outstanding debts, the owner will be required to repay those debts before ceasing business. If the owner sells the business, the purchaser will have the option of converting the sole proprietorship to another business structure. Another option the sole proprietor has is to pass the business down to his heirs.
The sole proprietorship has no tax requirement. Therefore, there are no filing or associated fee requirements for the sole proprietorship when it comes to taxes.
Such owners will need to comply with applicable licensing and permit requirements in the state in which they are doing business. This also includes local regulations and zoning ordinances.
If the sole proprietor intends on suing another party, he can do so by bringing a lawsuit in his own name. Likewise, if another party is suing the company, the legal suit will be brought against the individual owner and not the company. However, this is not how other business structures are handled; corporation and LLC owners will initiate lawsuits in the name of a company.
Sole proprietors rely heavily on bank loans and personal assets to establish their business. Once the business begins to grow, the owner might choose to convert to a corporation or LLC, depending on the business objectives and overall net profits. However, some people choose to run a sole proprietorship for years without converting.
Advantages of a Sole Proprietorship
There are many advantages of operating a sole proprietorship, including the following:
- Fewer formalities
- Cheaper to create
- No tax implications
- Ability to co-mingle assets
- Complete control over the company
Unlike the LLC or corporation, a sole proprietorship involves much less formality, particularly due to the fact that there are no fees or paperwork associated with forming this type of entity.
Because of the fact that there are little to no formalities, it can be much cheaper to form a sole proprietorship.
The sole proprietorship will not pay corporate taxes since all profits and expenses are reported on the owner’s personal income tax return. Moreover, since the proprietorship will have no other employees, the business and owner avoid additional tax implications, such as workers’ compensation insurance, unemployment insurance, and withholding tax.
Since the sole proprietorship isn’t considered a separate legal entity from its owner, the owner can co-mingle his personal and business assets. Furthermore, since the owner is running the business alone, he can act alone at his own discretion. There is no one telling him what he can and cannot do.
If you need help learning more about ownership in a sole proprietorship, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.