Sole Proprietorship or Partnership?

When all things are considered, the sole proprietorship or personal ownership may be the easiest but is not the wisest form of business or asset protection. A person is automatically a sole proprietorship or personal owner unless they have taken the necessary steps to properly incorporate. A Sole Proprietorship (or Partnership if more than one owner) is the simplest form of business.

With the exception of complying with any applicable licensing requirements, there are no formalities required of a sole proprietorship. The same situation and consequences exist for personal ownership of assets. The owner has total personal management and control over the company and assets. However, the price for this control is that the owner is at risk for personal liability incurred by the owner, owner’s agents, employees, lawsuits, etc.

A business conducted or asset owned under a name which does not show the owner’s surname or implies the existence of additional owners, a fictitious business name statement (dba) and notice may be required.

Contrary to popular belief, the fictitious business name does not offer any legal protection and the owner, spouse, family and partners have unlimited personal liability for loss. A sole proprietor or owner, even with a fictitious name, is not a separate entity itself. Rather, a sole proprietor is directly responsible, along with other related parties for its debts.

As a sole proprietor and/or asset holder the owner, spouse, family and partners are personally liable for the company or assets with unlimited personal liability for loss, thus placing all their personal assets and wealth at risk.

This means that if the owner of an asset or sole proprietor business doesn’t pay a supplier, defaults on a debt or loses a lawsuit, the creditor can legally come after all related parties’ assets and valued possessions.

Additionally, should a negative event happen personally for a sole proprietor or related parties it would have negative consequences against the business and assets.