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Operating a Sole Proprietorship

A sole proprietorship is the default form for a single individual operating a business. Nothing has to be filed in order to operate a sole proprietorship, so long as the business is not operating under a tradename.

The ease of formation and maintenance of a sole proprietorship is perhaps its chief advantage.

Simplicity, however, does not come without costs - the most important of which is that an owner of a sole proprietorship is personally liable for any and all business debts, obligations or acts. As far as the law is concerned, there is no separate legal entity and no distinction between the obligations of the business and those of the owner.

In order to attain liability protection or greater tax and management flexibility, even solo business owners may wish to form a single-member LLC.

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Furthermore, sole proprietorships are disregarded entities by the IRS that are not recognized for income tax purposes and, as a result, do not have the tax flexibility that LLCs offer. Members of LLCs are also free to establish a range of management arrangements, giving LLCs considerably more management flexibility.

In order to attain liability protection or greater tax and management flexibility, even solo business owners may wish to form a single-member LLC. (For more information about a single-member LLC's liability protection, please see LLC Talk: Single-Member LLCs - Asset Protection.)

A sole proprietorship operating under a tradename must register that name with the Secretary of State. A sole proprietorship operates under tradename when it uses any name other than the owner's legal name. (For more information on tradenames, see below.)

Note too that any business, including sole proprietorships, must obtain all of the permits and licenses required for the operation of that sort of business. If you need any assistance with this, PLF may be able to help. Let's Get Started.

Tradename Registration

A tradename is a fictitious business name. Business owners may have a variety of reasons for creating a tradename ranging from the ease of branding and marketing to concerns about privacy or simplicity. A tradename will also allow a sole proprietor to obtain an EIN, so that a personal SSN does not need to be used on tax forms or when opening accounts, like a business checking account or credit card.

Moreover, tradename registration is required for any sole proprietorship or general partnership that wishes to operate under a name other than the owners' legal name.

Tradename registration does not create a separate entity and therefore does not have to follow the naming restrictions that an entity would. As a result, a tradename does not need to be "distinguishable" from the names of other registered businesses and a business may operate under more than one tradename.

If you need assistance with tradenames or their registration, PLF may be able to help. Please, Reach out, Today!.

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