Choice of Entity Series Part 1: Sole Proprietorship

This is the first post in a four part series that will briefly explore several common entity forms.

A Sole Proprietorship is a choice of entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. Here is a simple checklist for the pros and cons of choosing to form a sole proprietorship:

  • This is the simplest form of doing business.
  • As stated above, from a legal standpoint, a Sole Proprietorship has no distinct existence from the owner of the business.
  • The Sole Proprietor is solely liable for the business’ liabilities.
  • Interest paid on any debt financing would be income tax deductible.
  • Any losses generated by the sole proprietorship are fully deductible by the individual owner.
  • There are no tax implications if the sole proprietorship ceases to conduct business.

Bottom Line: Sole Proprietorships are commonly utilized by individuals starting new businesses, especially if the businesses are operated on a part-time or limited basis.

This checklist is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses.  Our skilled Chicago attorneys can help counsel you on entity choice, filing proper documents with the state, and drafting organizational documents and agreements.  Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.

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