Understanding Sole Proprietorships and Regulations for New York Businesses
A sole proprietorship is an individual operating a business as the sole owner3 min read
A sole proprietorship is an individual operating a business as the sole owner. Due to its simplicity, the sole proprietorship is the most common form of business in the United States. But before assuming this type of formation, business owners in New York must understand their legal obligations and their rights.
Basing a business in a sole proprietorship is an attractive option for entrepreneurs who lack the time and resources to form more complex legal entities. A sole proprietorship does not require specific registration paperwork and has straightforward requirements concerning tax returns and annual filing of financial statements. Many small businesses operating in New York are run as sole proprietorships. Some common examples of sole proprietorships are small retail stores, web designers, and contractors.
Careful consideration for how to form a business must be taken at the outset and before any transaction enter into force. Although the sole proprietorship offers flexibility and ease in getting your business up and running, there are numerous legal and financial risks associated with this type of formation which can have both short and long-term impacts. As such, it is recommended that you engage a lawyer to assess the feasibility and insight of forming a business as a sole proprietorship.
What are the Legal Obligations?
When a person begins to operate a business in New York, they must register the business with the Office of the Professions. This registration is known as a Statement of Condition and must include the following information:
Name, mailing address, home address, and phone number of the business owner
Name of the business
Nature of the business
Type of proprietorship (i.e. sole proprietorship, partnership)
Name of the principal(s) and their respective telephone number(s)
New York businesses must also obtain necessary licenses and permits required by federal and local regulations in order to run their business. Depending on the type of business, this could include items such as:
Certificate of Authority to do business in the state of New York
Employer Identification Number (EIN)
Federal tax identification number
Fictitious Name Statement (DBA)
Injury & illness prevention plan
Sales permit or tax registration certificate
Workers' compensation insurance
Business owners should also consider if their activity or industry requires professional licensing. For example, in New York medical practitioners, attorneys, and stockbrokers must possess a valid license prior to them engaging in business.
Advantages and Disadvantages of a Sole Proprietorship
Forming a sole proprietorship in New York offers numerous advantages over other kinds of business structures.
Receiving full control and ownership of the business
Having easy access to funds for the purpose of business
Not having to pay taxes on corporate profits
Easier record-keeping and a simplified tax filing process
However, there are also some disadvantages of the sole proprietorship structure.
Business owner has full and unlimited personal liability as a sole proprietor
Raising capital may be difficult
It may be difficult to transfer or pass on ownership to another individual
It is essential for entrepreneurs in New York to take the time to become familiar with the legal consequences and any potential drawbacks of forming a business as a sole proprietorship. It is also recommended to consult with a legal expert to gain a better understanding of any potential risks associated with managing and running a sole proprietorship and consult with them on what type of formation may be more suitable for your business.