A sole proprietorship is a type of business entity. One person owns the business assets in their name and assumes personal liability for the business debts. A sole proprietorship is the easiest and least expensive business entity to create. However, before you start a sole proprietorship, you should consult a South Carolina business formation attorney about the legal requirements and liability for sole proprietors.
Benefits and Disadvantages of a South Carolina Sole Proprietorship
Sole proprietorships have many advantages, including:
- Minimal setup costs
- Easy to operate
- Pass through taxation
- Full ownership and control
However, sole proprietorships also have disadvantages. The main disadvantage is the personal liability for business debts and obligations. Additionally, sole proprietors may have limited funding options. If they receive funding, they might need to pledge their personal assets as collateral for the business loan.
Are You Required to File With the South Carolina Secretary of State for a Sole Proprietorship?
Most business entities are required to register with the South Carolina Secretary of State’s Office. However, sole proprietorships and general partnerships are not required to register. Therefore, you can start a sole proprietorship without filing any documents with the state.
However, you might need other paperwork and documentation to become a sole proprietor. Depending on your business type, you may need a tax identification number, insurance coverage, workers’ compensation insurance, and business licenses.
The basic steps for creating a sole proprietorship in South Carolina are:
- Select a business name (many sole proprietors operate under their personal name or a “doing business as” or d/b/a)
- Create a business plan
- Determine whether you need an EIN (employer identification number) or whether you can use your Social Security Number
- Verify the type of insurance and bonds required
- Understand personal liability and purchase liability insurance to protect yourself
- Determine whether you need a business and/or other licenses
- Speak with a tax professional regarding tax reporting and liabilities
- Determine whether you must pay sales, employment, or other business taxes
A South Carolina business attorney can guide you through the steps to set up a sole proprietorship. They can also review other business entities with you that could provide more advantages and better protection for your company.
Protecting Yourself Against Personal Liability for a Sole Proprietorship in South Carolina
Because you bear sole legal liability for business obligations, you may want to consider purchasing insurance coverage that covers your business obligations. Personal liability insurance might not protect you if you are sued for a business obligation.
Furthermore, all profits and losses are reported on your personal income tax return, so you may also need to consult with a tax professional before you begin the business. Accurate books and records are essential during tax time. A tax professional can also help you set up accounts and procedures for handling payments and taxes for employees and independent contractors.
Learn More During a Free Consultation With Our South Carolina Business Attorney
Setting up a new business is exciting. However, you need to ensure that you comply with the law, choose the best business entity for your company, and protect yourself from personal liability. Our South Carolina business attorneys will help you with all matters related to starting a new business. Contact us today to schedule your free consultation.