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Copyright 2006
Cornell University.
All rights reserved.


Sole Proprietorship


In a sole proprietorship, you, the owner, are the business. You do not need to set up any legal entity as you are totally responsible for any debts incurred as a sole proprietor.

Simplicity is your obvious advantage in a sole proprietorship. It costs little to start and you are in control of all decisions and reap all of the profits. You will pay personal income taxes rather than corporate taxes on your profits.

On the negative side, sole proprietorship will limit you to personal or borrowed funds for capital. You can't sell stocks and investors other than family will want more protection for their investments and the business' liabilities. The business as well as all contracts will be in your name. Therefore, you risk losing everything if the business fails. If you're married, property owned in common is liable for obligations by either spouse.

If you are just starting out with a small business, perhaps more as a hobby or as a supplement to your main income, a sole proprietorship might be a viable option for you.

Taft photo
"I started out as a sole proprietorship and then I incorporated, for two different reasons: the tax benefits and the liability issue."

Margaret Taft sells her services for developing and grading patterns and making markers as well as selling the Calf Cozy, a product she designed and distributes for newborn calves. She discusses the problems with the sole proprietorship form of business ownership.





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