Main Page >>
>> Sole Proprietorships
Business Formation - Sole Proprietorships
Many new business owners look at sole proprietorships as an
antiquated business structure because the business and the
business owner are treated as one in the same. In other
words, sole proprietorships offer no liability protection
for the business owner.
Why would someone want to set up a business this way?
Limited liability companies and other corporate entities
cannot protect business owners from professional
malpractice, such as with physicians, engineers,
attorneys and accountants. In other words, if you are
in a certain business, a limited liability or
corporation offers no
more personal liability protection than that of a sole
proprietorship. However, limited liability companies can
still afford you some liability protection in areas that
are not related to malpractice, such as contracts and
Sole Proprietorship Advantages:
(1) For Internal Revenue
Service purposes a business owners simply reports the
income on their 1040 at tax time. In other words, no
additional corporate tax returns are required.
(2) If your home office is your
principal place of business, your business is structured
as a sole proprietorship, and you have less than $10,000
in business personal property, you are exempt from
paying the business personal property taxes. Aside from
the taxes themselves, you are also not required to file
an annual business personal property tax return.
Sole Proprietorship Disadvantages:
(1) Sole proprietorships offer no
personal liability protection. While some businesses are
not protected by corporate entities for professional
malpractice, corporate entities such as
limited liability companies can offer personal
liability protection in situations involving contracts,
leases, and other legal situations where professional
malpractice is not a concern.
(2) Sole proprietorships are difficult
to pass a business on to family members or sell the
Common Sole Proprietorship Mistakes:
(1) Many business owners overlook sole
proprietorships because they offer no personal liability
protection. In same cases, considering sole
proprietorships as an alternative to a corporate entity,
such as a corporation or a limited liability company may
(2) Only sole proprietorships
operating out of a home office with less than $10,000 in
business personal property are exempt from Maryland's
personal propety taxes. Many non-exempt sole proprietors fail to
properly file the sole proprietorship's personal property tax return.
(3) Using non-attorney online vendors to
create a sole proprietorship. Most online vendors
simply input the text you type into a form that is freely
available from the
Maryland State Department of Assessments
and Taxation to create your sole proprietorship.
The Proy Law Firm can help you decide if a sole
proprietorship is the right choice for your business:
Contact us as any time if you
are thinking about establishing a new limited liability
company. It is important to start your new business off
with the right type of business entity and the proper
documentation in place.