The vast majority of small business people begin as sole proprietors, because it's cheap, easy and fast. With a sole proprietorship, there's no need to draft a partnership agreement or go to the trouble and expense of registering a corporation or limited liability company (LLC) with your state regulatory agency. All it usually entails is getting a local business license, and unless you are doing business under your own name, filing and possibly publishing a fictitious name statement.

But there are several reasons why doing business as a sole proprietor is not appropriate for everyone. First, the owner of a sole proprietorship is personally responsible for all business debts, whereas limited liability companies and corporations normally shield their owners' personal assets from such debts. Second, a sole proprietorship is possible only when a business is owned by one person or, in some cases, by a husband and wife. And finally, unlike a corporation, which is normally taxed separately from its owners, or a limited liability company, which can electcorporate tax status -- something that can result in a lower overall tax burden for many small business owners -- a sole proprietor and her business are considered to be the same legal entity for tax purposes.

Copyright 1999 Nolo.com Inc.