FAQ's

Sole Proprietorships

1. What are the relative advantages and disadvantage in using a sole proprietorship to do business?

   The proprietorship is the simplest way to conduct a business because a new legal entity does not need to be formed, nor are there any transfers of business assets to another person or entity. The business is not recognized as a separate legal entity apart from the owner even if operated under an assumed business name. Thus, the owner will have unlimited personal liability, and creditors can collect against both the personal assets and the business assets of the owner. However, since a single member limited liability company (LLC) can be organized and taxed as a proprietorship (that is, reported on the owner’s Schedule C, Form 1040 as a "disregarded entity"), a sole proprietorship should only be used by those individuals who want to avoid any organizational or operational costs and who can otherwise protect themselves against liability from risks of the business through adequate insurance.

   The advantages of a proprietorship include the fact that the owner has absolute control and discretion regarding business decisions. There are no "formalities" to comply with as in the case of a corporation, nor any "agency" or other responsibilities that exist among partners. Operational costs are held to a minimum since there are no separate tax reporting or return preparation expenses as in the case of a partnership, corporation or LLC. Further, a proprietorship is not required to register as a "foreign" entity to do business in other states, as would be the case for corporations, LLCs or partnerships.

   In most cases, the business will benefit by operating under an "assumed" name that describes the business and services, location and is easily remembered. Forms to be used for registering an assumed business name may be obtained from the Oregon Secretary of State, Corporation Division. Assumed names, which include the "real and true name" of the owner such as "William S. Jones Construction" do not need to be registered unless words that suggest the existence of additional owners (such as company or associates) are used as part of the name.

   Finally, the proprietorship must comply with all applicable business and occupational licensing requirements as well as providing worker’s compensation and unemployment insurance for employees.