SOLE PROPRIETOR BUSINESS: Definition And Examples

Due to its simplicity, ease of setup, and ease of management, sole proprietorship is a common type of business. More than 23 million people own a firm or other organization as a sole proprietor, making up the majority of small business owners. In this post, we’ll go over what a sole proprietor business is, how to set one up with some examples, and the best business structure to utilize for insurance.

Sole Proprietor Business

A sole proprietorship is a company whose owner is also its owner, and whose profits and losses are reported on the owner’s personal tax return. Approximately 73% of all firms in existence today are of this type, which is the simplest type of business. It’s vital to remember that a sole proprietorship is not a formal entity, but rather the person who runs and assumes whole responsibility for the business—the sole proprietor. The name of the business owner or a fictional name might be used for sole proprietorships.

Due to how easy it is to set up and run, this kind of business is quite well-liked. Being a lone proprietor requires only a local license and a registered name. Most businesses start out as sole proprietorships and eventually transition to a more complex business structure as they expand.

How to Create a Sole Proprietorship

The procedures that the majority of people use to establish a sole proprietorship are as follows, although each state has its own requirements:

#1. Determine the Type of Business you Desire.

Many different kinds of businesses can profit from operating as sole proprietorships. The majority of people opt to start their firms as sole proprietorships, ultimately transforming the business into a more sophisticated structure as it grows.

#2. Determine if a Sole Proprietorship is Right for You

You can decide if a sole proprietorship is the appropriate business structure for your venture once you’ve chosen the type of business you’ll launch. Before determining which sort of business is best for you, you should examine the benefits and drawbacks of each.

#3. Determine Your State’s Sole Proprietorship Requirements

The rules for operating a sole proprietorship vary by state. Before starting your business, you should find out what procedures the county, city, and state require of you in order to register it.

#4. Pick a Name.

A sole proprietorship may be operated in the owner’s name or under a made-up name (such as Cindy’s Candies). Make sure a name hasn’t previously been copyrighted by another business before choosing it. By contacting the United States Patent and Trademark Office, you can find out if the name you intend to use is already protected.

#5. Apply For a Business Permit

For legal operation, sole proprietorships must apply for a business license. To receive a business license, you can register with your city or county. You will also need to request the essential approvals from your neighborhood if you intend to operate your business from your house.

#6. Configure a Domain

The majority of small businesses decide to create a website for their firm. A website can assist in increasing traffic to your business and attracting new clients. It’s quite easy to get a domain, and you should do it as soon as you decide on the name of your business to make sure no one else buys a domain with the same name.

#7. Create A Business Account at A Bank.

The majority of sole proprietors complete their process by opening a separate business bank account. This protects the financial flow of the business by ensuring that personal and business revenue and expenses are kept apart.

Benefits of Being A Sole Proprietor

Particularly for small enterprises, running a single proprietorship can have several benefits. Some advantages of starting a sole proprietorship include the ones listed below:

#1. Free to Begin

Contrary to other business structures, a sole proprietorship is frequently cost-free to establish. This may be advantageous for people who want to transition from a side gig to more lucrative employment or who lack the resources to launch another kind of business.

#2. Full Control

Owners of sole proprietorships are the business’s only owners and have the absolute, final authority over how it is run. Control over all revenue: A sole proprietorship has no other financial commitments save those incurred by the owner, unlike other enterprises that could be needed to pay creditors, investors, and other groups or people.

#3. Ability to Use Losses on Personal Tax Returns

The profits and losses of sole proprietorships must be reported on personal tax returns by the business’s owners. This implies that a higher tax return can be obtained by using the sole proprietorship’s losses to reduce other personal income.

Cons of Being A Sole Proprietor

While beginning a sole proprietorship has some benefits, there are also drawbacks to take into account when determining if a sole proprietorship is ideal for you. Consider the following potential drawbacks when deciding whether this kind of business is the right option for you:

#1. Personal Liability for Legal Actions

The financial health of a sole proprietorship is entirely their responsibility. This means that the sole proprietorship’s owner may be sued by creditors if the business is in debt and unable to make payments to them. The business owner will be held personally liable for the debts if these cases result in a resolution in favor of the lenders.

#2. Fewer Alternatives for Raising Money

A sole proprietorship is unable to obtain funds through the sale of an ownership stake in the company, unlike other business structures. This may make it harder for solo entrepreneurs to raise money when they need it.

#3. Increasing Taxes

Owners of sole proprietorships are liable for paying both self-employment tax and income tax on the income generated by their businesses. If the solo proprietorship is successful, this charge could be substantial.

Sole Proprietor Business Insurance

Small business operators that operate as sole proprietors can purchase sole proprietorship insurance. It shields them from a range of dangers and liabilities that might occur throughout the course of their commercial activities. The kind of company insurance you require as a sole entrepreneur depends on the services you offer. General liability insurance and professional liability insurance are two of the most popular forms.

The price of sole proprietor insurance is determined by the risks and needs of your particular firm. It’s wise to compare prices from different providers before making a coverage decision.

#1. biBERK Business Insurance

A division of the enormously well-known Berkshire Hathaway Insurance Group is biBerk. The supplier, which is accessible in all US states bar OH, ND, WA, and WY, focuses on providing Workers’ Compensation insurance for small enterprises. BiBerk is automatically supported by an A++ AM Best financial rating and more than 75 years of insurance industry experience because it is a Berkshire Hathaway subsidiary. This implies that even under dire circumstances, you will receive service and coverage you can rely on. Furthermore, biBerk provides coverage for both multi-employee firms and single proprietorships, giving both types of organizations coverage alternatives.

#2. Harborway Insurance

Because it provides reasonably priced coverage to help you stay covered while you expand your business operations, Harborway is perfect for small and micro businesses. Harborway provides comprehensive General Liability coverage, and you can customize the plan to suit the needs of your particular business with optional add-ons. Additional choices for coverage include optional errors and omissions coverage for construction-related businesses as well as inland marine coverage for things you ship or keep off-site.

#3. Travelers Insurance

This insurance offers countrywide coverage for companies of all sizes. Travelers is one of the biggest insurance carriers in the US and has been in business for more than 160 years. They have a wide range of insurance options, but their professional liability insurance is particularly well suited for businesses that work in the accounting, bookkeeping, and tax preparation industries. They are a fantastic option for professional liability backing because of the brand’s large client base, one and a half centuries of experience, and top financial grade of A++ from AM Best.

#4. Accredited Insurance

The well-known Travelers Insurance is Accredited Insurance’s backer, and the two companies collaborated to create a General Liability coverage designed especially for small enterprises. Accredited has been in operation for more than 50 years and provides insurance in all 50 states as well as Washington, DC. The business has established a reputation for providing top-notch service and being reliable and honest. Additionally, AM Best has given Accredited a good financial strength rating of A-. As a result, you can relax knowing that a powerful firm will stand by you if something goes wrong.

#5. USG Insurance Services, Inc.

There is no better company to turn to for cyber security coverage than USG Insurance Services, Inc. To shield small and microbusinesses from cyber-attacks and data breaches coming from outside your organization, USG provides top-notch Cyber Liability insurance. Plans are offered for a variety of company models and are supported by North American Data Security and a strong AM. A- is the best financial rating. You may be sure that USG has a regional or local office close by to assist you with inquiries and account management support as needed because the company has more than 20 offices spread out across the nation.

Sole Proprietor Business Examples

The solo proprietorship business model is utilized by a huge variety of other business models. This list only serves to give you a broad idea of the examples of a sole proprietor business:

#1. Graphic Designer

For businesses, graphic designers provide marketing materials including flyers, brochures, and logos. When not working for a marketing or advertising agency, the majority of graphic designers work from home as independent contractors. Because of the tax benefits and licensing requirements for their business, a sole proprietorship works nicely.

#2. Freelance Photographer

On-location photo shoots for events like weddings and other special occasions are offered by independent photographers, who may work from their homes or from a studio. Many independent photographers launch their careers with nothing more than a camera, a laptop or computer, and a vehicle to bring them to the venues.

#3. Landscapers

Landscapers frequently begin as a one-person operation, thus the sole proprietorship legal form is ideal. But keep in mind that many lone entrepreneurs expand their businesses over time. The same is true of landscapers. It can be time to reorganize the business into an LLC, corporation, or partnership if they come across new work that demands more staff.

#4. Accountants

Bookkeeping and tax preparation accounting services are very well-liked and lucrative. If one works in this industry and already has a reliable position with another company, starting a sole proprietorship is a terrific method to supplement income.

#5. Plumber

Some plumbers are employed by building firms and municipal or county agencies to maintain homes, businesses, and factories. On the other hand, many work for themselves as independent contractors for construction firms or provide services to the general public. In order to establish a brand without having to invest time and money in applying for a formal business structure, a sole proprietorship is an excellent way to launch a plumbing business.

#6. Housekeepers

The ideal option for someone who runs a housekeeping business might be a sole proprietorship. As we discussed about landscaping, these kinds of enterprises typically expand beyond the control of a single owner, so there may come a point when the owner may wish to reorganize the organization into a different business model that’s optimal for financial, operational, and tax considerations.

#7. Franchises

It may surprise you to learn that a franchise owner can operate independently. The franchisee receives payment from the franchiser in exchange for the franchisee’s use of the company name. When it comes to taxes and other financial duties, a single franchisee is regarded as a sole proprietor.

#8. Financial Planner

If there is only one owner, financial planners may operate as sole proprietors. Working with individuals and small businesses is part of financial planning. Financial planners assist individuals in making plans for retirement, security investments, and even saving for significant expenses. Financial planners assist in setting up employee perks like retirement plans while working for a corporation.

What Are 5 Characteristics of a Sole Proprietorship?

The following are the five traits of a sole proprietorship:

sole proprietor of the company.
unlimited responsibility.
no formal body.
sole person in charge.
can complete the transaction at any time.

What Is the 3 Types of Businesses?

There are three main business structures: the sole proprietorship, the partnership, and the corporation. Each has advantages and drawbacks of its own.

What Sources of Funding Is Available for Sole Proprietorships?

Providing Your Own Funds
Funding for Sole Proprietors
Borrowing from Family and Friends
Financing through credit cards
Traditional Bank Loans