If that’s the case, you should look into LLCs or Corporations to see if one of them is a better fit for your personal and business needs. You should also compare the different tax options available in the different business entities before deciding one way or another. This is cost is really low compared to starting some of the other businesses on our list.
J. Willard Marriott originally began his root beer stand as a sole proprietorship, where he took his hobby and labeled it as a separate legal entity. As he began getting more income, he restructured his business like many sole proprietors of his time and started his A&W restaurant chain. The expansion was followed by incorporation, and A&W led to the formation of the Marriott Hotel Chain. As the owner of a sole proprietorship, you are fully liable if something goes wrong with your business. Unlike other business types that protect your personal assets, this one puts you at risk of losing everything if you have debts incurred.
While it can be challenging at times, this hands-on experience may lead to a broad, practical skill set that can strengthen their overall business acumen. Many find that their range of new skills allows them to add to their current business offerings. There are plenty of opportunities for you to make a living from a sole proprietorship. Once you find the one that works best for your skills, you may use the sole proprietorship as a stepping stone to launching a career.
Company
An Employer Identification Number (EIN) is a nine-digit number issued by the IRS and acts as a Social Security number for your business. While not required for all sole proprietors, it’s strongly recommended if you plan to hire employees, open a business bank account, or protect your Social Security number on official forms. Applying for an EIN is free and can be done easily online through the IRS website. At the start of your entrepreneurial journey, you’ll have a lot to figure out. We compare LLCs vs sole proprietorships, two of the most common business entities.
Some businesses and agencies view sole proprietorships as less legitimate or professional than incorporated businesses. This perception can impact your ability to secure contracts or work with certain clients. Consultants in areas such as business, marketing, finance, and IT can operate as sole proprietors. They offer expert advice and strategies to businesses and individuals, often working on a project or retainer basis.
As a sole proprietor, you are taxed as an individual, which means business income is reported on your personal tax return using Schedule C of IRS Form 1040. Unlike corporations, sole proprietorships do not pay separate business income taxes. Instead, profits and losses pass through directly to the owner’s individual tax return. New small business owners may choose to operate as a sole proprietorship because it’s less expensive and easier to set up than other business structures, such a limited liability company (LLC) or corporation.
A sole proprietorship serves as a straightforward business structure, allowing you to operate independently. This model features unique characteristics that distinguish it from other business types. If you’re running a housekeeping service by yourself, establishing a sole proprietorship can be the way to go.
Starting an in-home childcare business can be profitable, but doing so involves numerous state regulations regarding the cleanliness and safety of your home, as well as stipulations regarding liability insurance. Freelance writers contribute a variety of written content to magazines, websites and other businesses. By nature, freelance writers typically work as independent contractors, so their businesses are a perfect fit for sole proprietorship. Accounting, bookkeeping and tax preparation services are popular, profitable home-based businesses and therefore, are often set up as sole proprietorships.
Graphic Designer
If you’re not up to learning about these industries you should look into one of the other options we’ve listed. You record and track your client’s profits, losses, and the movement of materials. The people sending you messages form the other side of the screen are called Virtual Assistants, or VAs for short.
- The best online legal services are affordable and able to quickly solve your legal issues.
- Accounting, bookkeeping and tax preparation services are popular, profitable home-based businesses and therefore, are often set up as sole proprietorships.
- Your business’s losses, profits, income and deductions all flow through you.
- Read on to learn more about the differences between LLCs and sole proprietorships.
Is it better to be a sole proprietor or LLC?
The business is very easy to start and since you’re operating in the homes of clients, their home insurance will most likely cover any potential liability (though you should have your own insurance). Starting out as a sole proprietorship makes sense until you need to hire regular help to keep up with increased business. Plumbers who work for themselves and don’t hire employees are good candidates for a sole proprietorship. It can be difficult to get your own individual plumbing business off the ground so saving any costs you can is important.
- A solopreneur, in contrast, is not necessarily focused on scaling and selling.
- Actually, all the examples on our list are great for taking back your time and give you greater control of your income.
- They maintain consistency throughout campaigns while venturing into fields such as creating compelling visuals, audio, videos, animations, software, and more.
More Real-World Sole Proprietorship Examples
This structure allows a single individual to own and run a business, making it an ideal option for small business owners and freelancers who want full control over their operations. Here, we provide examples of sole proprietorship businesses to inspire aspiring entrepreneurs. A sole proprietorship is a business owned and managed by an individual, where the owner has complete control and ownership of its operations and liabilities.
Starbucks outlets are either company-operated or licensed but not individually owned as sole proprietorships. Even though the setup process for a sole proprietorship is simple, you may still need to secure certain permits and licenses to operate legally. Embarking on a sole proprietorship offers a world of opportunity, yet it comes with its unique set of challenges. Understanding these obstacles and knowing how to navigate them can make the difference between thriving and merely surviving. Here are common challenges sole proprietors face, paired with practical solutions to overcome them.
The benefits of going solo
Embracing the role of a sole proprietor means embarking on an adventure that is as rewarding as it is demanding. It requires a blend of passion, dedication, and strategic planning to navigate the complexities of entrepreneurship successfully. They also have full ownership of the business, and any profits earned belong to them.
You’ll need to obtain an EIN and comply with federal and state employment laws. Mixing personal and business finances is a common mistake that can complicate bookkeeping and lead to tax issues. Opening a dedicated business bank account helps you stay organized, simplifies tax preparation, and makes your business appear more legitimate to clients and vendors. To open an account, you’ll typically need your EIN (or SSN if you don’t have one), your business license (if applicable), and your DBA registration. Some banks also offer additional perks for small businesses, such as invoicing tools or low-fee merchant accounts. While a sole proprietorship itself doesn’t require state-level registration, you still need to comply with federal, state, and local regulations.
Businesses of all sizes will need a lawyer at some point, whether that is to register their business or to deal with example of sole proprietorship a client that isn’t paying. The best online legal services are affordable and able to quickly solve your legal issues. By prioritizing effective financial management, you ensure long-term success for your sole proprietorship. After that paperwork is filed, the business owner must create an LLC operating agreement, which outlines the business structure.
And, if you work in any industries regulated by federal agencies—such as alcohol sales, agriculture, or transportation—you’ll need to obtain those federal licenses as well. If you’re using anything other than your personal name as your business name, you must file a fictitious name (also known as a “DBA” or “doing business as”) with the Florida Department of State. Solopreneurs are similar to freelancers in that they both perform services for clients without the help of employees. If your business is still active but making no money, you may still have operating expenses that you can write off on your taxes. But if your business is inactive and not making any money, you should dissolve the LLC. As a sole proprietor, you do not need financial statements to handle your finances, as a corporation needs.
As we wrap up this exploration into the world of sole proprietorships, it’s clear that this business structure offers a path filled with potential for those dreaming of starting their own venture. From the simplicity and control it offers to the vast array of industries it encompasses, sole proprietorships prove to be a versatile and accessible option for aspiring entrepreneurs. Whether you’re drawn to freelance writing, graphic design, consulting, or another passion, understanding the examples and principles of sole proprietorship can light the way to turning your dream into reality.
