A sole proprietorship is a business owned by one person who is responsible for all of the business’s debts, taxes, and legal liabilities.
Because it’s owned by one person, a sole proprietorship is one of the easiest types of businesses for emerging entrepreneurs to create. As a result, it is one of the most popular business types in the United States, with more than 25 million businesses registered as sole proprietorships.
Unlike corporations and LLCs, sole proprietorships do not shield their owners – known as sole proprietors – from their firm’s debts, taxes, and legal liabilities. Sole proprietorships are less expensive to set up, but also riskier to operate, increasing the need for small business insurance.
Sole proprietorships are most suitable for people who want to get into business quickly, with fewer legal complications and fees.
The process to create a sole proprietorship is relatively easy:
You can literally go into business as a sole proprietor in a single morning or afternoon. In contrast, establishing a corporation requires hiring a lawyer to draft articles of incorporation and other business expenses.
There are several advantages to doing business as a sole proprietorship, including:
Disadvantages of sole proprietorships include:
Sole proprietors have the same legal liabilities corporations do, and they are generally eligible for protections with most small business insurance policies.
For example, if a service they perform for a client has a negative financial impact or causes property damage, the client could take legal action. In this case, professional liability or errors and omissions insurance could provide financial protection.
The difference is a sole proprietor is personally responsible for all legal judgments and settlements, unlike the owner of a corporation or LLC, whose legal structure shields against personal liability.
It’s essential for sole proprietors to have robust insurance protection to protect their personal assets.
Sole proprietors should consider protecting themselves against their major risks of doing business, including:
Business insurance is usually tax deductible, since it counts as a cost of doing business.
Insureon helps sole proprietors and small business owners compare commercial insurance quotes with one easy online application. Start an application today to protect your business.