Sole Proprietorship

California Attorneys Experienced in the Advantages of Sole Proprietorships

A sole proprietorship is the simplest business organization form. It is the easiest to organize and discontinue. The business has no separate existence apart from the owner. Because of the legal simplicity of sole proprietorships, there are virtually no requirements that you register your business at a state office in California.

Advantages of a Sole Proprietorship

There are many advantages of sole proprietorship, particularly for small businesses. A sole proprietorship is set up to allow an individual to own and operate a business by him or herself. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business.

If a sole proprietorship is formed with a name other than the individual's name, what is known as a “fictitious business name statement” must be filed with the county clerk or county recorder who has jurisdiction of the location of the principal place of business.

If the principal place of business is located outside California, the name will be filed with the Sacramento County Clerk-Recorder. No formation documents are required to be filed with the California Secretary of State. Other state filings may be required depending on the type of business.

Disadvantages of a Sole Proprietorship

The liabilities of a sole proprietorship will be personal liabilities. This means that if the business cannot pay its debts all of the owner's personal assets are subject to the claims of creditors. Furthermore, proprietary ownership interest terminates at death.

In terms of business tax liability, each asset in a sole proprietorship is treated separately for tax purposes rather than as part of one overall ownership interest. Therefore, a sole proprietor who sells his or her entire business must calculate gain or loss separately on each asset.

Other business tax liability applies: sole proprietors are also liable for self-employment tax. They cannot defer income tax by having the business retain its profits. Business losses can be used to offset other income of the sole proprietor.

Contact Our Attorneys

At the Law Offices of G. J. Mugg, our lawyers and staff understand all of the disadvantages and advantages of a sole proprietorship and can help you determine whether it is the ideal form of business organization for your purposes. Contact us to set up a free initial consultation, the first hour of which will be free if you retain our services.

Our sole proprietorship lawyers serve the needs of business clients throughout the United States. A majority of our clients have business interests and concerns in the Bay Area of California, including San Francisco, San Jose, Oakland, North Bay, East Bay, South Bay, and the counties of San Francisco, Alameda, Marin, Sonoma, Napa, Solano, Contra Costa, San Mateo, and Santa Clara.