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2TORIAL
Learn2 Choose a Business Entity (continued)
Step 6: Understand sole proprietorships

If you're the sole investor in your business and you want full control with minimum paperwork, consider sole proprietorship. It could actually make you more profitable in the end. Many businesses start out as sole proprietorships, then incorporate as they begin to grow. Advantages of sole proprietorship include:

Convenience. You avoid all the cost and paperwork associated with starting and maintaining a corporation. You simply need to abide by local and state business regulations.

Control. You can make all decisions relating to your business without consulting partners or a board of directors. This provides increased flexibility, letting you make advantageous decisions on the spot.

Simpler tax structure. Income from a sole proprietorship counts as personal income, which means the business itself does not have to pay taxes. That removes a whole step from the taxation process, and could actually net you more money.

There are disadvantages, however, including:

Unlimited liability. You will be personally responsible for debts and other liabilities you incur in the course of doing business. If business assets do not cover the amount owed, you could lose personal assets, including your home. This is the single biggest reason to consider incorporation.

No checks or balances. A board of directors may seem like a hassle, but their expertise can be invaluable. As a sole proprietor, there's nobody around to catch your mistakes.

Trouble raising capital. Investors are more hesitant since they could end up personally responsible for business debts and other liabilities.

Fragility. If a sole proprietor dies or becomes incapacitated without a will or some other clearly written agreement, the business could cease to operate.



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2TORIAL STEPS
Introduction
Step 1: Understand your options
Step 2: Understand the advantages of incorporation
Step 3: Understand the disadvantages of incorporation
Step 4: Consider the S corporation
Step 5: Understand LLCs
Step 6: Understand sole proprietorships
Step 7: Understand partnerships

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