Selecting a business structure is a basic step for any entrepreneur, but its importance cannot be overstated. A company’s structure will have a dramatic impact on everything from its short-term profits to its long-term sustainability.
One of the most popular structures for small and medium businesses is the sole proprietorship. It has numerous benefits, particularly for first-time business owners.
The fundamentals of sole proprietorships
In a sole proprietorship, one owner retains control of all business operations. It is the simplest form of business structure as it does not require you to file any legal paperwork with the state; you simply obtain the necessary permits and begin operations. This makes them appealing to entrepreneurs of all experience levels, particularly beginners. The IRS considers any income derived from a sole proprietorship to be personal income and does not require separate taxes.
Is it for me?
The straightforward nature of a sole proprietorship is one of its most attractive assets. While other companies are weighed down by corporate bylaws and shareholder agreements, a company run as a sole proprietorship is free to operate however it likes within the parameters of the law.
Entrepreneurs new to the world of business stand to gain a lot from this structure. As a sole proprietor, you are in charge of running the enterprise and are free to make any changes as you see fit. This gives you the flexibility to discover what works for you and what doesn’t. You get precious time to spread your wings as a business owner before deciding to incorporate later down the road if you wish.
Getting started on a sole proprietorship
California’s laws regarding the establishment of a sole proprietorship are very simple. You simply need to file a business name and, if you have any employees, request an Employer Identification Number for tax purposes. Then, you are on your way to running your own business. As the sole proprietor, you are in for a thrilling, daunting and fulfilling challenge. As your company grows and evolves, you may even someday want to reconsider its business structure.