Starting a Sole-Proprietorship
Sole proprietorship (sole props) are businesses that just one person runs without registering a business in Colorado. This is a common way many people's passions and hobbies start. A person makes something to sell or helps out friends with their expertise in a particular area, that's a sole-proprietorship!
However, sole proprietorships are not always in the best interest of you and your company. Becoming a "real" company brings significant advantages, e.g. protection from liabilities, potential tax savings and privacy.
Why would an owner choose to remain a sole proprietor? When does forming a Colorado LLC make more sense?
LLC vs. Sole-Proprietorship FAQ
Don't let the perceived simplicity of a sole-proprietorship fool you. Even if you don't use our service, we highly recommend forming an LLC or a Corporation where there is an active business.
- Asset Protection: An LLC and Corporation both provide a "corporate veil". This veil means if the business is sued you are not sued personally. A creditor to the business may go after the busines assets, but nothing that's in your personal name, e.g. your home, checking account or other assets. That would not be true with a sole prop.
- Professional Reputation: To complement all of this, having a business that is incorporated comes with a better reputation. There is simply another level of respect, both from other business owners and clients, associated with a formal business entity compared with a sole proprietorship. They know you are in it for the long haul and have taken the time to properly establish a company.
- Tax Savings: Forming a Colorado LLC delivers potential benefits when tax season arrives. The latest tax laws provide enhanced opportunities for pass-through entities. There are now lowered rates and more available deductions. You will not pay more and will likely pay less, which which means your formation costs will likely be returned when you file your taxes.
- Privacy: This last point applies particularly to home based and online companies. If you operate as a sole-proprietorship and use your home address, then you are putting your personal information online. It's not much different from posting your bank account and home address on Facebook. We provide anonymous LLCs as part of our service to keep your personal details off the internet.
Best of all, it is actually very affordable to incorporate your business. Doing so will not take long or much capital and will deliver a range of advantages. Depending your situation, you may get even more benefits with an anonymous LLC. Find out more about forming a Colorado LLC, registering a Colorado business and our registered agent services.
Reasons to Remain a Sole Proprietor
- Simplicity: The process of starting sole proprietor business is simple. The only thing you need to do is begin earning money in exchange for services or products. While many sole proprietorship opportunities exist, not all of these will deliver good returns or ever be anything more than a hobby.
- Banking: In the case of sole proprietorship, there is not even a requirement for a separate bank account that has its own Federal Tax Identification Number. You can rely on your personal social security number. Keep in mind however, that taxes become simpler with the Federal Tax Identification Number. Overall, with a sole prop, your finances and personal life are connected to your business, which suits some people just fine.