This article was originally published at http://www.globig.co/blog/setting-up-a-u.s.-business-part-1-the-sole-proprietorship.
Setting up a business in the United States can be complicated, depending on the business structure you decide on. Choosing a business structure and going through the required steps to set up your business entity is one of the first steps to doing business in the United States. This article on sole proprietorships is the first article in a series on setting up a U.S. business. The three articles to follow will discuss the other most common business structures in the United States: partnerships, corporations, and limited liability companies. Each article will focus on a particular business type and will include a description of that type of business, the advantages and disadvantages, and the general steps involved in forming that type of business entity.
Although state law governs the establishment and structure of business entities in the U.S., in general, the same legal structures are available throughout the country. As mentioned above, the most common legal structures are sole proprietorships, partnerships, corporations, and limited liability companies. Each type of legal structure has its own advantages and disadvantages, which will also generally depend on your specific business. Choosing a business structure is a strategic decision that should be made with careful thought and consideration of the advantages and disadvantages. Many people also consult with their attorney who can make company specific recommendations. Keep in mind, you may be able to change your business structure in the future. Whether it is possible and how complex it will be depends on your state laws.
Foreigners can be do business in the U.S. either through their foreign company or they can set up a U.S. business like any U.S. citizen or resident. There are no special requirements or complications involved in forming a business entity as a foreigner. Although the requirements and process of setting up a business will not differ for foreigners, they do need comply with U.S. immigration requirements, including visa and work permit requirements, to come into the U.S. and may face additional challenges opening a bank account.
What is a sole proprietorship?
A sole proprietorship is the simplest and most common business structure in the U.S. It is an unincorporated business that is owned and run by one individual. With a sole proprietorship, there is essentially no distinction between the business and the owner, meaning the owner is entitled to all profits, but is also responsible for all business debts, losses, and liabilities. In other words, the business and the owner are one and the same for tax and liability purposes.
What are the advantages and disadvantages of forming a sole proprietorship?
There are advantages and disadvantages to every business structure. After you have a full understanding of each, you should weight them in terms of their importance and effect on your particular business. Many people hire an attorney to help them decide which business structure is most appropriate for their company. Accountants can also offer advice and guidance on the taxation obligations of each type of structure.
Easy and inexpensive to form
Owner has complete control of the business
Preparing taxes is easy: taxes are not filed separately, rather the business income is the owner’s income
Owner has unlimited personal liability (for debts, obligations, and employee actions): this means the owner can be personally sued for debts and any other issues that arise in the course of business, including injuries on her business premises and acts of her employees
Owner has sole responsibility for the business
It’s harder to raise money: because there is no stock to be sold or given, investors will often not invest in a sole proprietorship and banks worry that owners will not be able to repay loans if the business fails
How do you form a sole proprietorship?
The steps involved in setting up a business aren’t always complicated, but some business structures involve complicated paperwork and more steps. You can form your business structure on your own or work with an attorney who completes the process for you. There is no formal action required to form a sole proprietorship, in fact, many people form a sole proprietorship without knowing it. If you are a freelance consultant or designer, chances are you have formed a sole proprietorship without realizing it.
Like all other businesses, you are required to obtain all necessary licenses and permits, which vary by industry, state, and locality. So, if you’ve formed a sole proprietorship unintentionally, you need to make sure you are in compliance with all applicable laws, regulations, and taxes. If you want to do business under a name other than your own, you will likely be required to file a business name (known as “doing business as name,” “fictitious name” or “trade name”) name. This can be done with either your county clerk’s office or state government. Some states do not require that you register your business name. A sole proprietorship is not taxed itself, but rather the owner must report income, losses, and expenses on her tax returns.
A sole proprietorship is just one business option in the United States. It is particularly advantageous to small businesses. You should carefully consider what business structure is most appropriate for your business. Your consideration should include the advantages and disadvantages described above with the future goals for your company in mind. If you need help deciding what type of business structure is best for your company,
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