sole propritoship

The sole proprietorship is the oldest, most common, and simplest form of business organization. A sole proprietorship is a business entity owned and managed by one person. The sole proprietorship can be organized very informally, is not subject to much federal or state regulation, and is relatively simple to manage and control.

The prevalent characteristic of a sole proprietorship is that the owner is inseparable from the business. Because they are the same entity, the owner of a sole proprietorship has complete control over the business, its operations, and is financially and legally responsible for all debts and legal actions against the business. Another aspect of the "same entity" aspect is that taxes on a sole proprietorship are determined at the personal income tax rate of the owner. In other words, a sole proprietorship does not pay taxes separately from the owner.

A sole proprietorship is a good business organization for an individual starting a business that will remain small, does not have great exposure to liability, and does not justify the expenses of incorporating and ongoing corporate formalities.

CHOOSING AN APPROPRIATE FORM OF BUSINESS REQUIRES CAREFUL CONSIDERATION OF ISSUES COVERED IN THIS GUIDE AS WELL AS OTHERS NOT DISCUSSED. THIS GUIDE ONLY PROVIDES BASIC INFORMATION ON SOME OF THE LEGAL AND PRACTICAL ISSUES TO CONSIDER WHEN SETTING UP A BUSINESS. IT IS MERELY DESIGNED TO ASSIST PROSPECTIVE ENTREPRENEURS IN THE EARLIEST STAGES OF BUSINESS DEVELOPMENT. THE GUIDE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. PERSONS CONTEMPLATING STARTING A BUSINESS ARE STRONGLY ENCOURAGED TO CONSULT LEGAL, FINANCIAL AND TAX ADVISERS. FIND AN ATTORNEY THROUGH THE 

Sole Proprietorship - Points to Consider

• Easiest type of business organization to establish. There are no formal requirements for starting a sole proprietorship
• Decision making is in direct hands of owner.
• All profits and losses of the business are reported directly to the owner's income tax return.
• The startup costs for a sole proprietorship are minimal.
• Owner has unlimited liability. Both the business and personal assets of the sole proprietor are subject to the claims of creditors.
• Because a sole proprietorship is not a separate legal entity, it usually terminates when the owner becomes disabled, retires, or dies. As a result, the sole proprietorship lacks continuity and does not have perpetual existence like other business organizations.
• It is difficult for a sole proprietorship to raise capital. Financial resources are generally limited to the owner's funds and any loans outsiders are willing to provide.
• Owner could spend unlimited amount of time responding to business needs.

Sole Proprietorship - Procedural Aspects

• There are no Iowa statutes governing the formation of a sole proprietorship.

Sole Proprietorship - Key Attributes

• Creation (minimum requirements) - No Formalities for creating a sole proprietorship.
• Profits / Losses / Distributions - Owner may use all profits and losses for business.
• Liability - Owner faces unlimited personal liability.
• Capital / Financing - All capital obtained from owner or through loans based on owner's creditworthiness.
• Duration - Usually no continuity upon disability, retirement or death of owner.
• Transfer of Ownership - Assets may be sold in entirety or in part.
• Management and Control - Owner manages and controls the company.
• Taxation - The business does not file or pay taxes.
• Reporting Requirements - None.
• Fees - None.