Many people know that one of the easiest kinds of business entities to set up is the sole proprietorship. However, with this entity, there are some issues. While it’s simple and often the cheapest route to starting a business, it can have long-term consequences if you’re not prepared to protect yourself against lawsuits or bankruptcy.
Sole proprietorships leave you completely liable for anything that happens on the job or as a result of your products or services. Here are three reasons to consider other business entities before choosing a sole proprietorship.
You don’t have protection against liability
If you are sued as a sole proprietor, you’re going to need to be cautious. Your personal assets are at risk because you don’t have the business structure shielding you. You and your business are considered the same legal entity.
You can only have a single owner in a sole proprietorship
If you want to expand at a later date and add in new business partners, you won’t be able to remain a sole proprietorship. You’ll need to switch your business entity first, so it may be just as easy to start off with one that allows for easier growth.
You could lose business opportunities
If you’re seen as an independent contractor, it could hurt your chances of landing contracts. Why? Businesses don’t want to risk you being seen as a mislabeled employee. Having a separate business entity eliminates that risk.
These are just three of the reasons why you may not want to have a sole proprietorship. Your attorney can help you look into the other kinds of business structures, so you can decide which is right for your situation and offers the best protection.