By Garrett Sutton, Esq.
Each entity choice has its pros and cons. There is no one-size-fits-all corporate entity that will be the best for every situation. (And beware of the advisor who tells you there is.) However, there is one entity that we call the “bad entity.” It is the Sole Proprietorship.
Why Sole Proprietorship is Hazardous
One lawsuit and you can lose all of your assets, meaning both your business and personal assets. The sole proprietorship offers no asset protection. It is not an entity in the true sense of the word because there is no separateness. You don’t file for a charter with your state, and thus there is no separate corporate legal identity. It is just you, doing business without any protection.
Why anyone would use it is simple: Because they do not bother to make a true decision about corporate structure. If you never choose a corporate entity but start up a business anyway, you are a sole proprietor. You are your business and your business is you. Making a bad decision or, in some cases, no decision can end up costing you not only your business assets but your personal assets as well.
The Easiest Entity to Set Up & Most Costly
There is no entity easier to set up than a sole proprietorship. You can easily set it up on your own because there is not that much to do. Once you start operating you will mostly forget about it. (Until you get sued and realize they can get everything you own.) Feel free to read my book Run Your Own Corporation for more information on entities. A portion of this blog was excerpted from the book.
Run Your Own Corporation by Garrett Sutton
“I’ve set up my corporation. Now what?”
If you have asked yourself this question, Run Your Own Corporation is the book to answer it. Written in an easy to follow, entertaining and educational format, this is the companion book to Garrett Sutton’s bestselling Start Your Own Corporation.
Follow the lives of three different couples as they start new companies all the way through their first five years in business. You will see real life examples of mistakes often made by new entrepreneurs, and the consequences of them. You will see these business owners learn, grow, struggle and succeed while learning about taxes, document retention, how to deal with local, state and federal governmental agencies, employee issues, customer recognition, legal matters, trademarks, insurance, business plans, corporate veil protection, stock sales, business credit, annual meetings, IRS audits and more.