When you start a business, you can organize it several different ways. For example, you may choose to incorporate or form a limited liability company (LLC). One of the seemingly simplest options is to maintain a sole proprietorship, which requires no legal formation at all. In fact, in Texas, all you have to do is begin operating , and you automatically own a sole proprietorship.
Like any other business entity, there are advantages and disadvantages to a sole proprietorship. The following is a brief look at some of them.
There is no required paperwork to file with the Texas Secretary of State to start or maintain the business. Therefore, there are also no filing fees or costs.
- A sole proprietorship is not required to pay payroll or unemployment taxes. In fact, there are no separate tax returns at all, because the owner reports the company’s income and expenses as their own personal self-employment taxes.
- The owner of a sole proprietorship has complete control of the business and can transfer assets, stop operations, or sell the business whenever she likes.
- All profits from the business go directly to the sole proprietor, who does not have to split them among partners or shareholders.
A sole proprietorship is not considered a legal entity separate from the owner. For this reason, there is no distinction between personal and business liability for debts. A creditor, therefore, can go after an owner’s personal assets to fulfill a debt of the business or to recover damages for harm caused by the business or its employees.
- It can be challenging to find investors, because they would not share in the profits of a sole proprietorship.
- Sole proprietors are ineligible for important tax deductions, like health insurance, and they may incur additional taxes, such as inheritance taxes if the owner passes away.
- Some sole proprietors experience difficulty setting boundaries between their businesses and personal lives. Owning a company by yourself can be all-consuming, and the lack of distinction between business and personal assets can further blur this line.
- Sole proprietorships work well for some people, while others may want to reduce liability and maintain a better work-life balance. You should carefully examine what type of entity works best for you, and the advice of a skilled business lawyer can help you explore all of your options.
Discuss Your Options With a Houston Business Attorney Today
Selecting an appropriate business entity is only the first of many important decisions that a business owner must make. Many decisions have important legal implications that you should understand and for which you should prepare. The Weisblatt Law Firm works with all types of companies to provide legal guidance and helps to resolve any issues or questions that may arise. To find out more about our Houston business law firm, please or call (713) 714-4634.