Are you like many other Illinois entrepreneurs who do not like paperwork? If so, as you ponder all of the business formation decisions you must make, you may be considering doing business as a sole proprietorship. While this type of entity has its advantages, you may want to take the time to understand the drawbacks as well.
A sole proprietorship is easier for many people. There are no paperwork requirements with the state of Illinois, no one else to report to and you retain 100 percent control over your business. You also get to keep 100 percent of the profits.
Does this sound good to you? The advantages of a sole proprietorship are quite appealing, but they do come with some significant disadvantages as well. For instance, there is no separation between you and your business.
You are 100 percent liable for the debts of your business. In addition, your personal assets are in jeopardy if a lawsuit is filed against your business. If you need to file a business bankruptcy, you will be involved personally as well. You are also responsible for all of the taxes arising out of those profits you get to keep.
You may be like others who are willing to accept the downsides of a sole proprietorship in order to reap the benefits. However, it could be a mistake to rush into opening your business under this type of entity without first fully understanding its ramifications, especially when compared to other entity types. In order to make an informed decision about the future of your business, it may be a good idea to consult with an Illinois business formation attorney prior to making your final decision.
Source: thebalance.com, “All about Sole Proprietors and Sole Proprietorship“, Jean Murray, Accessed on Jan. 28, 2018