Is a Sole Proprietorship a Legal Entity? Understanding the Pros and Cons
What is a Legal Entity?
A legal entity refers to any person, organization, or company with separate and distinct legal rights.
What is a Sole Proprietorship?
A sole proprietorship is considered one type of legal entity. Most small businesses operate under one of the following entity types.
- Sole Proprietorship
- Partnership
- Corporation
- Limited Liability Company
By default, if you operate a business and do not form a separate legal entity with the state, then you will be considered a sole proprietor.
What are the "pros" of operating as a sole proprietorship?
By default, if you operate a business and do not form a separate legal entity with the state, then you will be considered a sole proprietor. This is the easiest route to go since it happens by default. Some of the pros of operating as a sole proprietorship are detailed below:
- No paperwork required
- No formation fees
- No annual maintenance fees
What are the "cons" of operating as a sole proprietorship?
- Unlimited liability for the owner
- Perception of less legitimacy
Conclusion
Spoiler alert... we are huge fans of forming an LLC to protect your personal assets from the liabilities of your business. And, we can help you get over the perceived hurdles associated with any headache of the "paperwork." It's really a very straightforward to form your entity with the state, and we have a done-for-you LLC agreement for purchase right here.
And, if you need help on the formation piece, we encourage you to check out Wolters Kluwers BizFilings resources.
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ALTHOUGH KELLY AND KRISTIN ARE LICENSED ATTORNEYS IN THE STATE OF TEXAS, NEITHER THEY NOR DOTTED LINES CO., LLC ARE YOUR ATTORNEY, NEITHER THEY NOR DOTTED LINES CO., LLC HAS AN ATTORNEY-CLIENT RELATIONSHIP WITH YOU, AND NEITHER THEY NOR DOTTED LINES CO., LLC KNOWS YOUR BUSINESS. THE INFORMATION IN THIS POST IS NOT TO BE CONSIDERED LEGAL ADVICE, AND YOU SHOULD NOT CONSIDER IT A SUBSTITUTE FOR LEGAL ADVICE. WE ALWAYS RECOMMEND CONSULTING WITH AN ATTORNEY IN YOUR LOCAL JURISDICTION SINCE THEY WILL BE ABLE TO ADVISE YOU AS TO YOUR PARTICULAR SITUATION AND ALSO PROVIDE YOU WITH INFORMATION SURROUNDING ANY NUANCES OF YOUR LOCAL LAWS THAT WE SIMPLY CANNOT ADDRESS IN THIS POST. FURTHER, WE DO NOT GUARANTEE ANY SPECIFIC RESULTS.
