If you are planning to start a small business, a sole proprietorship may be right for you.   It is the most common form of business structure, and it is relatively easy and inexpensive to establish.  In fact, if you are presently carrying out any business activities (as, for example, a freelance editor or graphic artist), you have already formed a sole proprietorship. As long as you remain the only owner, you can continue operating as one.  Additionally, with this type of business structure, there is no need for formalities, like filing articles of incorporation or organization.

Be aware, however, that if you are going to use any name for your business other than your own, you will need to register a fictitious name or d/b/a (“doing business as”).  Once you have registered this name, it must be used on all legal or government forms, tax ID applications, business licenses, sales tax permits, etc.  (Check with your local or state government office to find out which licensing requirements apply.)

As the owner of a sole proprietorship, you and your business are considered the same entity.  For instance, you will not be taxed separately; instead, you will be taxed via the “flow-through” or “pass-through” method of taxation, in which all profits are taxed in the year in which they are earned, and all income and losses must be reported on your personal income tax return.  Incidentally, of the different types of business structures, the tax rates for sole proprietorships are lowest.

Finally, though you will be entitled to all of the profits from your sole proprietorship, you will also be personally responsible for all debts, losses and liabilities incurred by you or your employees during the course of business.  A good liability policy, however, can help protect you.

If you are planning to start a small business, a sole proprietorship may be right for you.   It is the most common form of business structure, and it is relatively easy and inexpensive to establish.