The most common form for someone just starting a business is the sole proprietorship. If you have a one-person business – a bookkeeper, a consultant, a computer repair shop, a housecleaner or a writer – it’s the perfect solution.
It is easy to see why it is nearly everyone’s initial choice: test
Starting one up is free. It requires no paperwork, and little if any legal counsel. It offers the owner complete control of the business – no board to report to, no explanations to write. You and the business are one thing – there is no daylight between you. You get to keep all the profits.
Many small businesses choose to be sole proprietorships and continue that way successfully for years.
But — there are downsides
Running a sole proprietorship is a little like being naked in public. You are out there, being bold and entrepreneurial. But you have no protection against bad things happening – and being in business, let’s face it, is dangerous.
Your personal wealth is indistinguishable from your business resources. If your business is sued or penalized, you are sued and penalized. You are liable for all your business debts. That is huge.
Money control, because it is not structured formally, tends to be loosey-goosey. You could be in dire financial straits and not know it until it is too late.
When you are a lone wolf, it is not easy to woo investors or obtain loans. This puts a lid on future growth.
All we are saying
We are not saying that sole proprietorships can’t work. This country has a long history of individuals going into business for themselves, assuming all the risks, and doing very, very well. Most great companies started this way, after all – just an entrepreneur, imagination and elbow grease.
Over the long-haul, however, most proprietors seek to protect themselves from the dangers of business.
Mehalko and Moghul PLLC has worked with hundreds of entrepreneurs in Virginia, Maryland and the District of Columbia.
We can help you work with the structure you have, or we can talk to you about business structures that provide protection against the inherent challenges businesses face.