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Read MoreDelaware vs. Florida: Where should you incorporate?
Where should you start your business? Sometimes the answer is easier than others. This article is designed to help you understand the differences between Florida and Delaware.
Read MoreYour "First" will isn't your "last"
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Read MoreServing on a 501(c)3 Board of Directors
Ever thought about serving on a Non-Profit organizations Board of Directors? Have questions? This blog is here to help you understand the risks you may or may not be taking when you accept the position.
Read MoreGet out and Vote!
When was the last time you voted? This post will give you the resources you need to get educated on voting, and the many rules surrounding it.
Read MoreProbate: What is it?
End of life planning is stressful. It certainly isn't something we enjoy doing. As the saying goes, "Two things are certain in life. 1) Death, and 2) Taxes." While estate tax may not apply to you, even if you have a Last Will in place today, your estate will likely go through probate. Read this blog to learn more.
Read MoreForming a Business Part 2: The Sole Proprietorship
The Sole Proprietorship
As mentioned in Part 1, the Sole Proprietorship (SP) is the easiest "Business Entity" to form. Many people that start their own business out of their home, or have a hobby that brings in a little cash, more than likely operate as a SP. The name explains it all! Sole = Solo or Single. Proprietorship = Business/Trader. In short, SP's are tied directly to its single founder/owner. As the owner lives and dies, so does the SP. There is no legal distinction between the owner of the business, and the business itself. This has limited benefits and substantial drawbacks depending on the nature of the business.
Benefits
The primary benefit to starting a SP is that it is quick and easy. In some cases, the founder wouldn't even have to do anything at all. John Doe could go out and start transacting business right away! If he wanted to be John Does Widget Service, all he would have to do is register his fictitious name or DBA with the state of Florida for a small fee. If applicable, the SP can also register to pay sales tax with the appropriate DOR. Most SP's even open business bank accounts in order to keep accounting straight, but this step isn't a requirement.
Paying income taxes is relatively simple as well. The profits earned by the business are counted directly toward the taxable income of the founder. In a round about way, it is like giving yourself a 1099. Your accountant or tax preparation software should do a good job of helping you navigate this area. Keep in mind, most people don't take taxes out on their SP earned income. This may result in a relatively high tax bill at the end of the year!
Drawbacks
While they are easy to start, the SP isn't always the best choice for at least one major reason.
Unlimited Liability for Owner
This is the most important and often overlooked disadvantage. If you operate a Sole Proprietorship, as the owner of the business, all of your personal assets are subject to any business related lawsuit. That means, in the event someone sues you related to a business transaction you had with them, they will be able to come after your personal assets in order to fulfill a judgement against you.
if you are operating a business as a Sole Proprietor, this may leave you asking;
"How can I protect myself?"
The answer is relatively simple. 1) Form an LLC, Inc, or other relevant business entity that provides a liability shield, and/or 2) Explore insurance options. These two options cost marginally more money than starting and continuing to operate your Sole Proprietorship, but will provide you the peace of mind that your personal assets are protected. Contact us for a free consultation regarding whether or not an LLC or an Inc. is right for you!