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It’s the simplest type of business—the sole proprietorship, a default classification for a business operated by someone who has decided not to form an official entity. If you know someone selling crafts on Etsy.com, for example, they are operating a sole proprietorship, if they have not formed an official company.
Sure, there are no state filing fees, and no requirements like licenses or insurance, but the sole proprietorship is deceptive and has hidden costs and complications.
Because of these and other disadvantages, Harvard Business Services recommends all sole proprietors think about forming a Delaware company (Corporation or LLC) rather than operating a sole proprietorship. We are happy to answer questions for you and help you to compare business entities and determine which is appropriate for you.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
There is 1 comment left for Disadvantages and Hidden Costs of the Sole Proprietorshiprob wert said: Friday, November 29, 2019
hi is Sole Proprietorship a good way to go for a bank account, to ensure the FDIC is ensuring my money? and do i even have to have an active company to do that?HBS Staff replied: Tuesday, December 3, 2019
Unfortunately, we cannot advise on financial matters. This question would be better suited for an accountant. However, we often find that the disadvantages of a sole proprietorship outweigh any potential advantages.