Is a Sole Proprietorship a Legal Entity? Understanding the Pros and Cons
What is a Legal Entity?
A legal entity refers to any person, organization, or company with separate and distinct legal rights.
What is a Sole Proprietorship?
A sole proprietorship is considered one type of legal entity. Most small businesses operate under one of the following entity types.
- Sole Proprietorship
- Limited Liability Company
By default, if you operate a business and do not form a separate legal entity with the state, then you will be considered a sole proprietor.
What are the "pros" of operating as a sole proprietorship?
By default, if you operate a business and do not form a separate legal entity with the state, then you will be considered a sole proprietor. This is the easiest route to go since it happens by default. Some of the pros of operating as a sole proprietorship are detailed below:
- No paperwork required
- No formation fees
- No annual maintenance fees
What are the "cons" of operating as a sole proprietorship?
- Unlimited liability for the owne
- Perception of less legitimacy
Spoiler alert... we are huge fans of forming an LLC to protect your personal assets from the liabilities of your business. And, we can help you get over the perceived hurdles associated with any headache of the "paperwork." It's really a very straightforward to form your entity with the state, and we have a done-for-you LLC agreement for purchase right here.
And, if you need help on the formation piece, we encourage you to check out Wolters Kluwers BizFilings resources.
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