For Utah residents who have created a product or are providing a service, it may make sense to take the necessary steps to form a business entity. If it is an individual who is running and operating the business while doing all or most of the work, it makes little sense to get too complicated with complex and risky business structures. The simplest type of business formation is a sole proprietorship. Often, people who are getting started in business are out of their element with legal terms and requirements. With that, it is beneficial to have professional help in determining how to move forward.
Understanding a sole proprietorship
The person who owns the business as a sole proprietorship is fully responsible for it in its entirety. That includes financially, controlling it and for its management. All decisions are made by this individual. It is important to note that there is no separation between business assets and liabilities and personal assets and liabilities. If the owner owes creditors for business expenses, then personal assets can be used to cover what is owed. A business that accrues massive debt could conceivably cost the owner his or her home.
Although there is inherent risk with a sole proprietorship, it does have benefits. It is inexpensive to create and does not need significant experience to get started. The business itself is not subject to legal filings since it does not exist without the owner. If a creditor seeks payment, it will sue the owner and not the business. The sole proprietorship can be transferred to another owner without fuss; it generally terminates if the owner is incapacitated or passes away; and it cannot accrue capital like other types of businesses would through investors. With taxes, the personal income is taxed.
Determining if a sole proprietorship or other formation is better
The type of formation a business uses is one of the fundamental aspects of how it will be run. For many, a sole proprietorship is the best way to go. However, depending on the goals, how to adhere to the law, to be legally protected and to place the business in a solid position to succeed, other options might be preferable. When making the decision and moving forward with creating a business, consulting with a firm that is experienced in business formation and planning can provide guidance and assistance throughout the process.