If you’re thinking about starting a business, you may have already started looking at the different business entities and what kind you might like to set up. It’s true that this can seem a little overwhelming if you’re unfamiliar with business law, so you might think that being a sole proprietor is fine. After all, you don’t have to do much to set up a sole proprietorship, since it’s the default business structure in the U.S.
It’s probably not the best idea to stay a sole proprietor, though, because it doesn’t offer you much protection. You and your business will be considered one in the same, which means that if someone sues your business, you could be on the hook for paying them if they win. If you have to go into bankruptcy, it will be a personal bankruptcy, too, even if it was only your business that was struggling.
Yes, a sole proprietorship is the easiest way to start a business
Since you don’t need to set up any special documents, a sole proprietorship is the easiest way to start your business. However, the way you classify your business does matter, and there are options that are more protective that you may want to investigate further.
For example, a limited liability company is considered a separate entity from you. You’ll choose a business name and register your business with the state. You’ll have separate business accounts and manage your business as if it’s its own entity.
The benefit of an LLC is that you have some protection against liability. If someone sues your business, your business may be forced to repay them, but you won’t. That means that your personal property is protected much better than if you were a sole proprietor in the same situation.
If you don’t know what kind of entity to choose, get help
It’s worth learning more about the different kinds of business entities before deciding on the right one for you. Setting up your business right from the state will help you reduce the likelihood of facing liability issues, bankruptcy problems or other issues that could harm you personally.