Sole Proprietorship

Control
The sole proprietor has total control of the business. The problem with total control is that if the owner dies, the business ceases to exist. The assets and liabilities of the sole proprietor will pass to his or her estate, but often the expertise and knowledge of the business usually die with the sole proprietor. A competent estate planning lawyer can assist the sole proprietor in arranging for the business to be transferred to a family member or some other person upon the death of the sole proprietor.

Liability
In a sole proprietorship, all of the personal and business assets of the sole proprietor are at risk. One obtaining a legal judgment for damages against a sole proprietor can secure a lien against his or her personal assets and can foreclose on the lien. This unlimited liability is the greatest disadvantage of this type of business form. Different types of insurance coverage are available to lessen the perils of having one’s personal assets at risk.

Taxes
Taxes are reported on the sole proprietor's personal income tax forms. The sole proprietorship is the simplest form of business for tax purposes. As the business grows, the sole proprietor may wish to change to another business organization if it would result in significantly lower taxes. Sole proprietors should also contact their local, state and federal tax authorities regarding the collection of sales and other taxes.

Administrative Obligations
The sole proprietor should maintain adequate records to successfully run the business and for tax purposes. However, there are no administrative requirements, such as maintaining minutes of meetings or passing resolutions, with which he or she must comply. Usually, the only requirement is to obtain and pay the fee for a local business license. State law also requires that a sole proprietor operating under a trade name register in the county where it will transact a majority of its business. This allows creditors and others the opportunity to learn the identity of the actual owner, since it will be the owner who is personally liable for the debts and obligations of the business.