Sole Proprietorships in Florida
If you’re looking to get your business off the ground as quickly and inexpensively as possible in Florida, then you should definitely consider operating as a sole proprietorship. It’s one of the easiest ways to start a business, and one of the most common – as of 2019, an estimated 73% of businesses in the United States are sole proprietorships.
Forming a Sole Proprietorship in Florida
Unlike other business entities, you don’t need to file anything or take any formal actions to form a sole proprietorship. It’s the default business structure for any new entity in Florida. That said, you’ll still need to obtain the necessary permits and licenses required by your jurisdiction and industry. You’ll also need to follow state and federal regulations just like everybody else. You’ll also need to apply for a fictitious name, or DBA, if you want to use a name for your business other than your own legal name. However, before filing for a DBA, it’s a good idea to perform a name availability search to make sure that the name isn’t already in use.
Is a Sole Proprietorship a Good Idea for Independent Contractors?
Unfortunately, there is no one-size-fits-all answer to this question. It primarily depends on your unique situation, the services that you’ll be providing, and your goals for future expansion. If you’re unsure whether a sole proprietorship is best for your business, contact us to schedule a complimentary 15-minute phone consultation with our business formation attorney.
Advantages of a Sole Proprietorship
Easy and Inexpensive Formation
You won’t find a business that’s less expensive or less complicated to set up than a sole proprietorship. Not only do sole proprietorships not have to register with the state of Florida before they can start doing business – they can operate without holding annual meetings or other formalities required of corporations. There’s no need to appoint a board of directors – after all, this business is entirely yours.
Complete Control of Your Business
By definition, a sole proprietorship is run by a single individual. This means that you control every aspect of your business, from setting your own hours to optimizing your workspace. It also gives you the freedom to change things up and implement new business strategies without needing to consult with anyone else during your decision-making process. The power is all yours.
Easy Tax Preparation
Sole proprietors enjoy the lowest tax rate of any business structure. Their process for filing taxes is less complicated as well. Because there’s no legal distinction between a sole proprietorship and its owner, there’s no need to file a separate tax return for the business. All profits go directly to the sole proprietor, and that income is then reported on the individual’s personal tax form.
Disadvantages of a Sole Proprietorship
Your Personal Assets are at Risk
Some sole proprietors don’t realize that their personal assets could be at risk if the business goes into debt since there is no legal divide between the individual and the business. In other words, if your business goes under, everything from your home to your car – anything registered in your name – can be seized to discharge the liabilities, which can be unlimited. This is also true for lawsuits over damages resulting from an accident or negligence while conducting business.
Unlimited Personal Liability
A sole proprietorship is also less than ideal for those whose business activities open them up to significant liability. Because the owners of incorporated entities and partnerships are legally separated from their businesses, they don’t need to worry about having their personal assets confiscated due to debt or other liabilities. This is one of the many reasons that having a solid business insurance policy is important.
Harder to Raise Money
If you plan on raising money for your business, then you might want an entity other than a sole proprietorship. Since you can’t sell stock in a sole proprietorship, your opportunities to engage with investors will be severely limited. You’ll also face an uphill battle when trying to secure a bank loan for your business, too. Banks consider most sole proprietorships to be high-risk investments. This is because they typically have a hard time raising the capital necessary for repayment if the business goes under.
The flip side to having complete control over your business is that you also bear all the responsibility. Running a sole proprietorship can come with a lot of pressure. You don’t have any partners to support you, and there’s no one else to blame if you don’t succeed. Additionally, you might encounter some resistance when trying to work with other businesses and organizations because of the largely false perception that unincorporated entities are somehow less professional than their corporate cousins. They might also worry that hiring a sole proprietor makes it more likely that the IRS will classify that person as an employee instead of an independent contractor.
Sole proprietors also have a harder time selling their businesses. Because there is no separation between the business and the owner, obtaining an accurate valuation can take some extra work. A change in ownership because of death or other reasons could also cause regular customers to leave if their loyalty was invested in the previous owner rather than the business itself or the products or services that it provides.
Protecting your personal and family assets from liability is an essential responsibility of every business owner. Entities such as LLCs are a great way to transition into business ownership. Our firm provides guidance for LLC management. We’ll help you understand how to make business deductions, as well as how taxes will work for your LLC. Find out more on our business formation page.