Helping Clients Make the First Move Toward Starting a Business
When you are ready to start a business, one of the first issues you must address is choosing a business entity. Entity formation affects many aspects of your future business, including how the law views your company and how taxes are handled. Many business owners choose to become sole proprietors because of the simplicity of the process. However, while starting a sole proprietorship is easy, it can leave you vulnerable as you have a greater amount of personal liability than with other entities, such as a limited liability company.
Our small business lawyers deeply understand the nuances of New York business law, making us your ideal allies when selecting a business structure for your new company. We can review your current circumstances, needs, and goals to help you determine which business structures make sense and which would not work for you.
We have helped countless small business owners get started on the right foot, increasing their business income and protecting their personal assets. Call our law offices today for personalized legal counsel based on our decades of combined experience. You can reach us at 516-908-9519 to schedule a free consultation with our skilled legal team.
What Is a Sole Proprietorship?
Sole proprietorships are some of the oldest forms of business ownership. This entity occurs when the owner has sole ownership of the company, which is held directly in the individual’s name. This affects both the manner of ownership, the process for collecting business income, the personal liability of the owner, and the taxation process.
When you own a sole proprietorship, the following will likely be true:
- You will own the company in your own name and will be legally and financially responsible for everything that happens in your business
- You will need to apply for business or professional licensing on behalf of your company
- You will be held personally liable for debts that your company incurs, including lawsuits that may be brought against your company
- You will collect 100% of the profits earned through your company
- You will pay taxes based on a personal income tax rate, similar to paying self-employment tax
For more help understanding how this business structure works and whether it is appropriate for your situation, call an experienced business lawyer like those on our legal team today.
What Are the Advantages and Disadvantages of Owning a Sole Proprietorship?
Sole proprietors enjoy many benefits as the business owner of a proprietorship. However, these business organizations come with certain drawbacks as well. Understanding how sole proprietorships differ from other business structures is crucial before deciding whether becoming a sole proprietor is right for you.
Advantages of Sole Proprietorships
One distinct advantage of owning a sole proprietorship is the simplicity and ease of starting your business. Since starting a sole proprietorship is so easy, it is inexpensive and can move very quickly. Other advantages include not having to deal with limited partners or other partnerships that could delay decision-making and result in disputes. Filing for tax purposes can also be quite simple when doing business as a sole proprietor.
Disadvantages of Owning a Sole Proprietorship
On the other hand, sole proprietorships come with some major disadvantages. While you have complete control over your company, you also have unlimited liability, meaning creditors and predators can come after your personal assets to fulfill debts or pay for lawsuits. This could mean emptying your bank account and even losing your home. In other business entities, such as a limited liability company, you are viewed as separate from your business, so your personal assets are protected, which does not occur with sole proprietors.
How Do You Start a Sole Proprietorship in New York City?
Before you start any business in NYC, you should consider speaking with a business attorney who can review your unique circumstances and help you determine which business entity is correct for you. If a sole proprietorship makes sense for your situation, your lawyer can help you set up a business structure that meets your needs and protects you as much as possible. A business lawyer can also assist you with filing taxes to minimize your tax burden.
Some of the main steps of starting a sole proprietorship in New York include:
- Creating a business plan – Your business plan can include a description of the purpose of your business, such as what products or services you’ll be selling. You can also describe your marketing goals, business structure, and financial goals.
- Choosing a business name – Picking a business name is crucial when starting a sole proprietorship. Your lawyer can help you file a New York DBA if you are doing business as a name other than your legal name.
- Obtaining an EIN, also known as an Employer Identification Number – Getting an EIN may differ from your social security number if you have employees or if your business falls into certain categories, such as selling tobacco, alcohol, or firearms. Speak with an attorney right away to see if you need to file for an EIN.
- Getting the necessary permits, such as for businesses in the legal, banking, or medicinal fields
- Opening a business bank account – Separating your personal finances from your company is crucial, especially when starting a sole proprietorship
- Reporting and filing taxes – Filing self-employment taxes can be overwhelming for many people, especially with business income to account for. Reach out to a business attorney to ensure you aren’t paying unnecessary taxes on your income as a sole proprietor.
Why Should I Hire a Lawyer When Starting a Sole Proprietorship?
Hiring a legal team to help with your new sole proprietorship is one of the best things you can do as a new business owner. Many people make the mistake of thinking that sole proprietorships are so easy to form that they don’t need any help from a lawyer. However, you may open yourself up to be personally liable for your business’s debts, which can be financially devastating. You could also miss out on tax benefits when you choose not to hire a law firm that understands New York tax law and can minimize the taxes you pay based on the Internal Revenue Code.
Additionally, your attorney can help you learn more about other business structures, such as limited liability companies. It is essential to understand that some business entities offer greater protection while maintaining the tax benefits you’re looking for. Starting an LLC may require a bit more effort at the outset, but doing so can save you a great deal of money and stress later on.
Some other business entity options that may be worth discussing with your lawyer include:
- Limited partnership
- General partnership
- C corporation
- S corporation
- Limited liability company
Should You Hire Our Sole Proprietorship Attorneys?
Starting a company involves many business decisions that can affect your financial security in the years to come. We recommend taking the time today to research all your options so you can make the best choice for your long-term success. Our business attorneys offer many other services, including the creation of sound legal documents to protect your company legally. We can also help with your personal tax return and help resolve disputes or breaches of contract.
Reach out to Fisher Stone, P.C. today to learn more about how you can have full control over your business while maintaining privacy and protection over your personal assets. We can help you make the best decision based on your specific circumstances, and we offer a free consultation, so there is no risk when you come in for your initial consultation. Call 516-908-9519 to schedule your free consultation today.