The Problem with the Sole Proprietor

Posted by | Startup | June 29, 2015

Most businesses in the United States are run by sole proprietors. A sole proprietor is simply someone who operates their own business, but does not have a partner and never bothered to create a corporation or LLC. Most businesses use this model because it’s free and doesn’t require any paperwork. However, the easy road is never the best road when it comes to running your business.

The main problem with being a sole proprietor is that you are personally liable for anything your business does. If your business had some creditors you couldn’t pay or someone were to sue you, then they could take your business, your house, your car, and your dog (well, maybe not the dog). Creating an LLC or corporation protects your personal assets, dog included. This limits your liability to only the things that are part of the company.

In the business world, sole proprietors are usually frowned upon. First, having a registered company makes your business look more professional, and that can lead to increased activity. Second, many see it as a reflection on your work ethic and desire to succeed. If you can’t be bothered to cough up the small costs and paperwork associated with registering a company, then you’re thinking small and may not do the work necessary for your clients and customers.

Finally, investors won’t touch you. Investors want to see structure and purpose, and an understandable way to invest. Sole proprietors are simply asking for money to put in their bank account. This significantly limits your growth potential.

So it’s time to think big. Creating an LLC or an S-Corp doesn’t cost much, provides significant protection to your personal stuff, and makes you look like a real business. How can professionalism, investment, and increased sales hurt?

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