When it comes to starting your business, there are many different types of business structures to choose from. Each has advantages and downsides. If you’re a single-person entity — a person starting a business on their own — a sole proprietorship might be the best option for you.
When it comes to forming a sole proprietorship, no formal action is required. Undergoing any business activity automatically makes you a sole proprietor. Any freelance graphic designer is a sole proprietor. Run an Etsy store by yourself? You’re a sole proprietor. That landscaping business where you mow lawns on your own? That makes you a sole proprietor, too.
Even though sole proprietorships form automatically, you may have to obtain appropriate licenses and permits in order to go about business proceedings legally. Regulations for licenses and permits vary considerably by industry and locality. Additionally, if you decide to operate under a name other than your own, you may need to file a fictitious name form, sometimes known as a trade name. Things also get more complicated if you make the decision to go from a sole proprietorship to an LLC.
For now, let’s walk through some of the benefits of a sole proprietorship.
Sole Proprietorship Advantages
1. They’re Easier to Establish
Business ownership is easiest and simplest under a sole proprietorship. As a sole proprietor, you establish your own business. It is exclusively a one-person business: as a sole proprietor, you are your own business. There is no separate entity and there cannot be more than one owner.
Having your business solely between you and yourself means you have no legal agreements to prepare. At the end of the day, it’s just you, running your own business as you wish. This is often one of the biggest advantages of a sole proprietorship for many people. That said, you probably still need a business bank account to keep your personal finances separate from your business finances, even though you aren’t technically required to have one.
2. Fewer Requirements for Business Taxes
One of the primary advantages of a sole proprietorship is its simplicity, particularly when it comes to taxes. Business taxes can be a complex task to handle, but with a sole proprietorship, the demands are less overwhelming, especially in comparison with other entities.
As a sole proprietor, you are not required to apply for an employer identification number, or EIN, as other business structures are. This makes life a lot easier when filing taxes, as it allows you to file them as yourself rather than as a separate business. Business income and losses of a sole proprietorship are reported on your personal tax return.
3. Complete Control as The Business Owner
Sole proprietorships aren’t just easy to set up, they’re also much easier to run than other businesses. Because it’s just you, you have complete control over business proceedings. When you have a sole proprietorship, you don’t have to worry about things like company officers or registered agents that are included in LLCs or corporations. As the sole owner of your company, you have total control over decisions, finances, and other aspects of how your business functions. No need to open a joint bank account with a business partner!
A sole proprietorship allows you to attain a level of privacy and autonomy that is largely unachievable with other business structures. This is namely because the government does not require you to disclose or report information about your business as it does for corporations or LLCs, meaning you are mostly free to run your business as you wish.
4. Less Registration Fees Compared to Corporations
Starting a business includes paying for registration fees upfront. That can be costly, particularly when your business hasn’t made any income yet! When you’re just starting out, you’re likely going to have a tighter budget. But, one of the biggest advantages of a sole proprietorship is that they don’t have to pay registration fees. You can also avoid the fees associated with opening a business bank account, which is a con of business banking for LLCs.
Before an LLC or other business entity can conduct business, it must register legally in the area where they intend to conduct business. To maintain their registration, LLCs also have to pay an annual fee, and these expenses can quickly add up. This is particularly true if you’re in an industry where your business will take years to establish and become profitable. Sole proprietorships are considerably less expensive than other business entities and remain so over time because there are fewer legal requirements.
5. Easier Banking Set Up and Operations
With just you running your business alone, banking and operation are significantly simpler. You don’t have to worry about payroll. Since you can file your taxes yourself, you don’t have to open a small business bank account, but you should. A sole proprietorship is still a business, so it can be helpful to open a sole proprietorship bank account specifically for tracking your income and expenses and making sure you’re staying in charge of your finances. Opening a bank account will make accounting and tax season much easier, and it’ll give you more peace of mind that your assets are protected.
When it comes to setting up a sole proprietor bank account, many traditional banks require a long wait, a lot of paperwork, and much more hassle than is actually necessary. But this doesn’t have to be the case. Take a look into NorthOne’s quick, easy, hassle-free banking options for sole proprietors. NorthOne allows you to make deposits from anywhere, connects to your favorite apps, and sends your money in a flash.
If you run your business by yourself, you can save a lot of time and money by opting for a sole proprietorship instead of other business structures. For many, their business will always be a single-person entity, making a sole-proprietorship by far the most ideal (and cheapest) option. Remember, if you intend your business to expand over time, you can always start as a sole proprietorship in the beginning and then change business structures as you grow and start to make some hard-earned revenue.