Working as a Sole Proprietor is an exciting experience as you work for yourself and you are your own boss. However, a sole proprietorship can be stressful as well as it makes you personally liable for what happens.
Unlike in an LLC, corporation, or partnership, the proprietor himself/herself is personally on the hook for anything that happens. When debts become due, creditors can come after you directly to collect. For most sole proprietorships, it is the combination of insurance coverage, keeping overhead costs low, and generating consistent revenue that keeps them flourishing. However, change in the current economy can adversely affect such sole proprietors. Additionally, what they don’t realize is that in case of bankruptcy in small businesses, a sole proprietor’s personal assets can also get seized. And thus, given below are certain essential point you need to keep in mind about sole proprietorship:
1A sole proprietorship, unlike a limited liability company (LLC), is not a separate entity from its owner
2Sole proprietors must file business income or losses as part of their personal income tax returns
3Sole proprietors must contribute to Social Security and Medicare
4A sole proprietor is personally liable for all business-related debt or court judgments, including in the case of sole proprietorship bankruptcy
5Creditors can go after a sole proprietor’s home, car, personal bank accounts, and other assets to recover unpaid debt
6Insurance cover can shield a sole proprietor from certain personal liability, but generally cannot protect a sole proprietor from creditor’ claims
7A sole proprietorship exists so long as the owner is alive. It is up to the owner to make estate planning provisions if he/she wants the business to continue after death.
Hence if were to look at the bigger picture, a sole proprietorship is certainly a quick way to run any venture and raise capital. But once your small business starts getting more and more financially stable, it is essential that you consider incorporating your business to protect yourself from being held liable personally. This would also help you to create a much more productive growth in future for your venture.
Originally posted 2017-08-09 00:10:30.