The 5 Biggest Risks Of A Sole Proprietorship

Do you own your own business?

There are many different entities you, as a business owner, can choose to have your business fall under.

 

A sole proprietorship is the easiest way to start a business however there are many risks that come with setting up your business as a sole proprietor. Page, Lobo, Costales and Preston APC would like to share the top 5 risks associated with running your business as a sole proprietor:

  1. You run the risk of being sued personally. If you incorporate your business it provides a layer of protection between you and any losses your company may encounter. If you get sued as a sole proprietor, you can lose all your personal property in addition to your business holdings.
  2. It is more difficult to get a business loan. If you apply for a loan as a sole proprietor, a lender will look at your personal finances. If they are less than stellar it may be difficult to receive a loan to help your business grow.
  3. You are more liable as a sole proprietor. As a business owner you are held directly responsible for any losses, debts or violations coming from the business. If the business must pay any debts, they will be satisfied from the sole proprietor’s own personal funds.
  4. You must pay self-employment tax. Some other tax benefits may not be deductible as well such as health insurance premiums for employees.
  5. There is less stability of the business. If the owner becomes deceased or incapacitated, the business cannot continue. If the owner passes, the business is liquidated and becomes part of the owner’s personal estate to be distributed to its beneficiaries. This can result in heavy taxes to the beneficiaries.

If you are interested in starting up a business or currently own a business as a sole proprietor, it is in your best interest to contact Jonathon Preston at Page, Lobo, Costales and Preston APC to take the necessary steps to protect yourself and your business.

Advertisements

How To Set Up A New Small Business

Setting up your own business?

Congratulations! Owning your own business is exciting and rewarding. Page, Lobo, Costales and Preston APC would like to share some tips for starting up your own business.

 

Page, Lobo, Costales and Preston APC helps small businesses get setup legally and would like to share some questions and answers for all you entrepreneurs out there. If you are setting up a new business, call The Law Offices of Page, Lobo, Costales and Preston.

Q: What type of business entity should I setup my business as?
A: You can begin as a “sole proprietor” to start doing business. It is easy and inexpensive to start as a sole proprietor however there is no legal protection for your personal assets. This means you have no limit to your personal liability for business failures or mistakes. If you want to limit your liability, set your business up as a corporation instead.

Q: Do I need a Federal Tax ID number?
A: If your business is a corporation, an LLC or has employees you need a Federal Tax Identification Number. Even if you are a sole proprietor you might want to get an EIN. If you do not have one as a sole proprietor, you can use your social security number however an EIN is more professional and less risky than giving out your SSN.

Q: What is a resale license?
A: A resale license will enable your company to purchase goods or materials for manufacture or resale without paying sales tax.

Q: Do I need to file a fictitious business name?
A: If you use any name other than your own, you will need to file a “doing business as” name. This will enable the public to know who is actually operating the company.
Have questions about setting up your business? Call us to get answers: 951-461-2500.

 

The Advantages and Disadvantages Of Various Business Entities

Page, Lobo, Costales and Preston understand the importance of setting up your business correctly.

We would like to share some of the various advantages and disadvantages of several business entities out there.

business entitiesSole Proprietorship: Pros

  • No fees associated with creation of the business entity
  • Business and owner are legally the same entity
  • Owner may deduct a net business loss from persona income taxes
  • Easy to create and maintain

Sole Proprietorship: Cons

  • Owner must pay personal income taxes for al net business profits
  • Owner is personally liable for any debts, judgments or other liabilities of the business.

General Partnership: Pros

  • No fees associated with creation of the business entity
  • Easy to create and maintain
  • The owner may report their share of net business losses on their personal income taxes

General Partnership: Cons

  • Owner must pay personal income taxes for al net business profits
  • All the owners together are jointly and personally liable for any debts, judgments or other liabilities of the business

Regular Corporation: Pros

  • Some benefits may be deducted as business expenses
  • Owners and business may be able to lower taxes by splitting the business profits among owners
  • Owners of the business enjoy limited liability for the business’ debts, judgments and other liabilities

Regular Corporation: Cons

  • A Corporation is more expensive to establish than a sole proprietorship or partnership
  • A Corporation must pay its own taxes as a separate tax entity

S Corporation: Pros

  • Owners share net profits of the business and report their share on personal income taxes
  • Owners share net business loss and can offset other income by reporting this loss on personal income taxes
  • Enjoy limited liability for the business’ debts, judgments and other liabilities

S Corporation: Cons

  • More expensive to establish than a sole proprietorship or partnership
  • Paperwork is more complicated than paperwork required for a LLC, but has similar advantages
  • Some benefits are only given to owners who have more than 2% of the business’ shares

Limited Liability Company (LLC): Pros

  • Owners of the business enjoy limited liability for the business’ debts, judgments and other liabilities, even if the owners engage in significant control of the business
  • Profits and losses can be allocated to the owners along different lines than ownership interest
  • Owners choose how an LLC is taxed – either as a partnership or corporation

Limited Liability Company (LLC): Cons

  • More expensive to establish than a sole proprietorship or partnership

Do you have questions about setting up your business entity? Please call us!