This post is from our friends at MyCorporation
Does it make sense to incorporate my eCommerce business as a sole proprietorship or should I choose another entity? It’s a question that many new entrepreneurs face when starting their eCommerce businesses, especially considering that sole proprietorships tend to be one of the most popular legal structures. Here’s a closer look at some of the pros and cons with starting a sole proprietorship that ‘treps need to know about.
Pro: You get to be the boss.
This is mostly true of most entities, but it’s sole proprietorships take it to the next level. This entity is run by one individual. Entrepreneurs are able to exercise complete control of their business and incorporating means the owner is the business. The owner, and the owner alone, is entitled to all profits incurred by the eCommerce business. It’s a big plus for anyone who wants to call the shots, make all of the decisions, and answer only to themselves!
Con: There’s no separation between professional and personal assets.
Unlike their LLC and corporation counterparts, sole proprietorships do not offer liability protection. You are held personally liable for everything that happens to the business — from employees experiencing injuries on the job to accidentally losing valuable information from your clients — and any incurred debts because the business is not considered to be a separate entity.
Pro: Sole proprietorships are affordable formations.
Overall, it’s fairly easy and convenient to incorporate as a sole proprietorship. It requires minimal paperwork to fill out and is affordable for nearly every entrepreneur, from freelancers to consultants. Keep in mind, however, that depending on your offerings you may need to apply for additional business licenses and permits and pay the associated fees.
Pro: This entity is great for businesses with little personal liability risk.
Running an eCommerce business from your home office or garage? Your business will likely thrive as a sole proprietorship since it doesn’t have a physical storefront where personal liability issues tend to get involved.
Con: Sole proprietorships tend to face more financing challenges than most entities.
Remember when I mentioned that sole proprietors don’t have a separation between professional and personal assets? This also impacts them financially too. The business will not be able to provide its own credit history because it doesn’t have one, which makes it hard for banks to lend money to sole proprietorships. Instead, all eyes will be on the entrepreneur’s existing credit history if they decide to expand their business, line of credit, or reach out to potential investors. If the credit history isn’t satisfactory, entrepreneurs may resort to funding through their savings or using personal credit cards.
Pro: Being a sole proprietorship makes it a little easier to file taxes.
According to the SBA, sole proprietorships do not need to worry about filing taxes separately as a small business — or even prepping balance sheets! Instead, all they will need to do is file their personal tax returns and report tax on any income earned there.
About the Author
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @mycorporation.