A Sole Proprietor May Be Right For Your Business
If you plan to run a small, quiet mom-and-pop kind of operation, a simple proprietorship is probably your best bet. It means a one-owner operation. You alone are responsible for all the debts of the business, and you reap all its profits (after taxes). As a sole proprietor, about all you need is a letterhead and a place to work. In most localities, you can do business under your own name without registering with anyone. You don’t need a lawyer because a proprietorship is really the absence of any legal form of business organization.
Maybe there are local rules requiring a proprietor to get an occupancy permit, a sales-tax certificate, or various other documents, but you can find out about these with a call to City Hall. However, if you go into business as a Realtor, a CPA, a medical practitioner, or a member of some other regulated profession, you’ll have to be licensed by the state, and must meet its standards of training and competence.
Do you want to use a trade name, such as Logjam Enterprises or Honest Joes or whatever? You’ll probably need to register this name, and your own name and address, at the office of the county clerk or some similar sanctum. Any made-up business name is legally described as a “fictitious” name. Fictitious names or assumed names are considered perfectly okay unless they’re deceptive, or unless you happen to pick one already being used by another enterprise nearby. A duplicate name can confuse the public, so the first user can invoke the law of unfair competition to make you stop doing business under that name.
As long as there are no complaints about you, you’ll be almost totally unregulated. And of course, there are no partners or stockholders to raise bothersome questions. You’re all alone in the driver’s seat. That’s a nice feeling if you’re a take-charge, do-it-now type with special skills. Many highly successful businessmen spend their lives as sole proprietors.
When you own a business all by your lonesome, your profits are taxed only once, as a part of your personal income. In other words, you pay no income tax on the net earnings of your business as such, but only on the combined net of your earnings and losses from the business and all other sources. You’ll also pay self-employment taxes, of course, and payroll taxes and the like if you have employees.
This way of doing business is likely to be highly personal. You probably know your employees quite well, and may get emotionally involved in their accomplishments and problems. You’re in close contact with many of your customers and most of your suppliers, and you learn a lot from “talking shop.”