The simplest type of business to form is a sole proprietorship. With a sole proprietorship, no state filing or processing is required to get started. Once you start collecting revenue, the entity is a business. But keep in mind, there is no separation between assets of the business and the owner. This means you can be held personally responsible for business liabilities and debt.
Pros and Cons of Sole Proprietorship
Pros of a sole proprietorship:
Ease of creation. Owners can establish a sole proprietorship instantly.
No state paperwork. There is no state filing required to create a sole proprietorship.
No separate tax filing. Business income / loss is reported on the owner’s personal tax return and tax is paid at the individual level. No separate business tax filing is required.
Few ongoing formalities. Sole proprietorships face few, if any, ongoing requirements or formalities, such as state annual report or ownership meeting requirements as with C-Corporations, S-Corporations and LLCs.
Cons of a sole proprietorship:
Unlimited liabilities. The owners of sole proprietorships can be held personally responsible for any business debt or liabilities.
Difficulty raising capital. It's usually more difficult for sole proprietors to raise operating cash or arrange long-term financing.
Less professional. A sole proprietorship appears less professional than a corporation or partnership.
How to Start a Sole Proprietorship
No state filing is required to start a sole proprietorship. You can start collecting revenue immediately and report it on your personal tax return. But keep in mind, unless you file a DBA (doing business as) your personal name will be your company name. In order to open a separate bank account, most banks require sole proprietors to have a DBA name. You may also find that potential customers and vendors feel your business is more legitimate with a DBA.
