A sole proprietorship is perhaps the simplest business entity available for self-employed individuals. In fact, many people have a sole proprietorship without even realizing they do. For example, a college student offering lawn services in the neighborhood to make some extra money may not recognize that he is running his own business, however if he receives money in exchange for his lawn care, he has a sole proprietorship. In short, any time an individual offers services or goods in exchange for money, a sole proprietorship exists. Some additional common examples of sole proprietorships include hairdressers, freelance writers or artists, financial planners, small retail businesses, handymen, and many more.

How does a sole proprietorship work?

A sole proprietorship is so simple because it requires no forms or filings with the Secretary of State or any other agency to form. Once you start doing business, your sole proprietorship comes into effect. You may even use your own social security number for your business until you start hiring employees. Once you hire employees, you will have to apply for an Employer Identification Number (EIN) from the IRS.

Your sole proprietorship is not considered to be a separate entity from you, which has advantages and disadvantages. On the plus side, the business is not itself taxed and you will instead simply report profits or losses on your personal tax return. On the other hand, because there is no distinction between you as an individual and your business, you may be held personally liable for any business debts. For instance, if you fail to pay a supplier or other creditor to your business, they can come after your personal assets and property to settle the debt.

Famous sole proprietorships

Sole proprietorships are not necessarily tiny, unknown businesses. In fact, many famous businesses started as sole proprietorships and remained as such until they grew large enough to require incorporation. Ebay, Kinko’s, J.C. Penney, WalMart, and Marriott Hotels are some examples of sole proprietorships that grew into multi-million dollars corporations.

If you are conducting business as a sole proprietor and want to know whether this is the right business entity for you, do not hesitate to contact an experienced California business attorney today for help.

- Claire Kalia


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