Although there may be good reasons to use another form of business organization, also, there are benefits to “going it alone” with a sole proprietorship DBA – Doing Business As. Mainly for the purpose of protecting personal assets from business duties or possible lawsuits, many experts advise the creation of an LLC or a corporation.
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However, for a variety of reasons, many small business owners elect to conduct their business as a sole proprietorship. Sole proprietorship benefits include:
- Having control of your company
- A simplified and More Affordable company organization
- Privacy
- Minimum reporting requirements
- Simplified tax coverage
Each one of those sole proprietorship advantages will be discussed below.
You’re in Control
As you’re the sole proprietor of a sole proprietorship, you’re in complete control of your company. All of the choices are yours to make. You don’t have to seek the approval or consent of any partners, members, officers, directors, or shareholders, as you would have to do if you had a partnership, LLC, or corporation.
1 question to ask yourself is: Do I need to be the only one who makes important decisions, or would I be more comfortable having one or more co-owners to help me with major decisions with the decision-making?
Simplified and Less Costly Organization
There are no forms to complete, and no government fees to cover, to form a company as a sole proprietorship. Forming a general partnership typically does not require any government forms, but it’s highly advisable to have a formal partnership agreement so as to outline the rights and responsibilities of the spouses, and to work out any disagreements that come up. Other types of business organization may require filing some national and state government forms, and pay substantial fees.
By way of instance, in certain conditions, a limited partnership may come under the jurisdiction of securities laws and their disclosure requirements. An LLC or company will need formation documents to be filed with the proper state agency, and the payment of filing fees.
If you choose to run your sole proprietorship under a business name that’s distinct from the name (typically known as an assumed name, a fictitious name, or a doing business as [DBA title), there are a fairly straightforward state authorities form along with a small fee to cover.
Privacy
Since a sole proprietorship doesn’t record any formation documents or yearly reports with the state or federal authorities, your business operations aren’t subject to public disclosure such as an LLC or corporation.
Minimal-to-No Reporting Requirements
A sole proprietorship doesn’t have to file an annual report with the state or national governments. Typically, partnerships don’t need to submit an annual report. Nonetheless, LLCs and corporations will be required by legislation to run specific meetings of members or shareholders, and file certain reports with the state authorities.
Simplified Tax Reporting
The sole proprietorship tax benefits are simplified reporting requirements rather than having to pay individual taxes for the company.
A sole proprietorship doesn’t need to submit any special tax forms to the state or national government. Typically, the only tax form that a sole proprietor will file with the IRS is a Schedule C (Profit or Loss from a Company) as part of the yearly Form 1040.
Having a partnership, company profits and losses have to be divided among the spouses and reported to the IRS. All partners need to report their share of the partnership gain or loss on their tax returns. With an LLC or a corporation, you may make an election to have the profits from the business be taxed as a sole proprietorship or partnership tax status. If this election isn’t made, the LLC or corporation itself may have to file tax returns (and pay a separate taxes), together with the shareholders also paying taxes on their share of the proceeds.
Conclusion
Starting your business as a sole proprietorship DBA (doing business as) has a lot of benefits. But this decision should take into account all of your situations, including whether you may need other people to invest in your company, your asset protection requirements, and your tax situation.
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