Setting up a new business involves plenty of decision-making. This can include deciding which type of business entity you want and which makes the most sense for what you’ll be offering customers.
When it comes to business types, one legal entity you’ve probably heard of is the sole proprietorship. It’s one of the most common formation types with single-owner businesses since they’re easy to form, offer a lot of operating freedom, and come with some great tax benefits.
If you’ve never heard of them, then learn more about sole proprietorships. In fact, you may already be a sole proprietor and not even know it.
In this article, we’ll focus on a few examples of sole proprietorships for self-employed individuals, independent contractors, and freelancers.
As an independent business owner or contractor in the early stages of business formation, you may question if a sole proprietorship is best for you. What you may not realize is that many home-based businesses operate as sole proprietorships.
A lot of them end up expanding into a limited liability company (LLC) or a corporation as they grow. Below are some examples of small businesses where a sole proprietorship makes the most sense.
Keep in mind that this isn’t a definitive list. There are countless other business types that use the sole proprietorship model. Our list is to just provide you with a general idea.
Freelance photographers may operate from a studio or from their home and offer on-location photo shoots for events like weddings and other special occasions. Many freelance photographers start their businesses with only a camera, a laptop or computer, and a car to get to venues.
Being a sole proprietor allows this type of small business owner to apply for a “doing business as” (DBA) name and claim business expenses.
Some plumbers are employed by construction companies and city or county departments to maintain residential, commercial, and industrial buildings.
On the other hand, many are self-employed and work with construction companies as independent contractors or serve the public. A sole proprietorship is a good start for a plumbing business because it allows the owner to build a brand without having to spend time and resources registering for a formal business structure.
Graphic designers create marketing materials, such as flyers, brochures, and logos for businesses. Most graphic designers, when not employed by a marketing or advertising agency, offer their services as freelancers and operate from home. This is why a sole proprietorship works well with their business needs for licenses and tax advantages.
Freelance writers provide content to various print and electronic publications like magazines and websites. They often provide articles, blogs, and other informational pieces to publications specializing in certain businesses, interests, and causes. As their name suggests, these writers are independent contractors, making their work perfect for a sole proprietorship.
Landscapers usually start off as a single-member business, meaning a sole proprietorship designation is a great fit. Keep in mind, however, that many sole proprietors grow their business as time goes on. Landscapers are no different. As they find new work that requires more employees, they might come to a point where it’s time to reorganize the company into an LLC, corporation, or partnership.
Accounting services that involve bookkeeping and tax preparation are very popular and profitable. A sole proprietorship is a great way to earn some extra income on the side if one works in this field and already has a stable job with another company.
Financial planners can work as sole proprietors if they’re a single owner. Financial planning involves working with small businesses and individuals. For individuals, financial planners help plan for security investments, retirement, and even saving for large expenses. If working with a business, financial planners help set up employee benefits like retirement packages.
If one owns a housekeeping service, then a sole proprietorship may be the best option. These types of businesses usually grow beyond an individual owner, so, like we mentioned about landscaping, there may come a time when an owner will want to reorganize the company into a different business model that’s best for operational and tax purposes.
Believe it or not, the owner of a franchise can work as a sole proprietor. The way it works is that the franchise owner will pay a fee to the franchiser for the right to use the company’s name. A single franchisee is recognized as a sole proprietor when it comes to taxes and financial obligations.
As a sole proprietor with little business know-how, this method can be quite profitable as the franchiser will provide the business model along with support for operations and marketing.
With platforms like Etsy and Shopify, many enterprising individuals are leveraging their talents and converting their craft-making hobbies into small businesses. Many of these businesses are registered as sole proprietorships, which allows them to claim business expenses while building a customer base and making money on the side.
At the start of your entrepreneurial journey, you’ll have a lot to figure out. But if you’re ready, we can help you form a sole proprietorship. Not sure if sole proprietor is the best option for you? We compare LLCs and sole proprietorships, two of the most common business entities.
We can help you start an LLC or a corporation with our extensive and helpful services that include an operating agreement template, our worry-free compliance, and even applying for an employee identification number (EIN). Get started today!
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.