Sole Proprietorship Negatives
A sole proprietorship is when the person is the business. They are owned by one person and have no legal requirements to start. Many starting out opt for this default structure. They require no extra paperwork, but they pay more in taxes and offer no asset protection.
A proprietorship has unlimited liability and the owner is responsible for all debt. You as the owner are also liable for all the debts of the business, if someone sues the business, they are suing you. The owner can be forced to sell personal belongings to pay down debts. This is known as unlimited liability and is a major downfall in being a proprietorship.
A sole prop pays the same taxes as a wage earner. This means no taking advantage of the new tax code for small businesses and paying too much in earned income taxes.
Doing business in your personal name is less professional. Clients and vendors know you have not registered with the state, that you cannot have any partners and can only grow so large. Having a business shows you're there for the long term and this is more than a side project.
Discloses Private Information:
Forming an LLC allows you anonymity. Colorado's Secretary does not list owners or managers. Contrast this to a sole-prop where your name appears everywhere and people know your home address. Learn more about LLC privacy here.
Rather than spending a lot on insurance, and hoping to not be sued, you may form an LLC or a Corporation for protection. Each has better tax treatment which more than cover the minimal cost of incorporating with us.