There are many options available if you want to start a business. The most common way is to set up a sole proprietorship. Florida business owners can start a sole proprietorship very easily. Keep in mind, however, that there are important pros and cons to consider. Depending on the type of business, a sole proprietorship in Florida may not be the best option.
“It is very tempting for a person starting out in business to avoid the hassle and cost of forming a company and instead operating as a sole proprietorship. That may work fine for some businesses, but there are some important risks to consider.”Florida Business Attorney Trevor Brewer
What Is a Florida Sole Proprietorship?
A sole proprietorship is the simplest and most common business structure people use. Sole proprietorships are unincorporated, meaning they are owned and operated by a single individual. From a legal perspective, sole proprietorships are much different than other kinds of business structures; there is no separation between the owner and the business.
Starting a Sole Proprietorship In Florida
Unlike with other business types like LLCs or corporations, you do not need to register a sole proprietorship in Florida. In fact, many freelance workers are likely operating as a sole proprietorship without knowing it. As a result, starting a business as a sole proprietorship is incredibly easy.
However, if you plan to use a name other than your legal name, you will have to register it as a fictitious name. In Florida, a fictitious name is what you might know as a “doing business as” or “DBA” name. You can submit fictitious name registrations to the Florida Division of Corporations either online or by mail. Not including a certified copy, it costs $50 to register a fictitious name.
Before you register a fictitious name for your sole proprietorship, Florida law requires that you advertise that fictitious name in at least one newspaper in the county where the business is located.
Pros of a Sole Proprietorship in Florida
By forming a sole proprietorship, Florida business owners can take advantage of several benefits they might not get with other business structures.
Sole Proprietorships Are Easy to Form
As mentioned above, sole proprietorships do not require any special registration. As a result, they are fast and easy to form if you want to get your business up and running quickly.
In addition to the lack of registration paperwork, sole proprietorships require less paperwork to operate in general. Unlike LLCs, corporations, and even partnerships, a sole proprietorship does not require any sort of formation document. This means no need to worry about drafting and maintaining an operating agreement, bylaws, or another kind of governing document.
Inexpensive to Form and Operate
Sole proprietor Florida businesses don’t have to pay anything unless they will operate under a fictitious name. Consequently, sole proprietorships are one of the cheapest business types to start. By contrast, other business types may cost hundreds of dollars in fees after all is said and done.
Sole Proprietors Have Complete Control
Because the sole proprietorship belongs to a single owner and operator, a sole proprietor has complete control over their business. They can make decisions and changes much more rapidly than in other business types.
Tax laws treat a sole proprietorship as one and the same with its owner. Accordingly, the business itself is not taxed separately, and all business income is the same as the owner’s. Thus, sole proprietors only need to report their income from the sole proprietorship on their personal income tax return after calculating losses and expenses.
Cons of a Sole Proprietorship Florida
Unfortunately, the flexibility of a sole proprietorship also comes with several downsides. As a result, it is very important to consult with an attorney to determine whether a sole proprietorship is right for you. Particularly when it comes to personal liability, it may be worth it in the long run to spend the time setting up an LLC or corporation instead.
You Have Personal Liability for Debts and Obligations
One of the biggest reasons people choose to form LLCs and corporations is the limited liability they provide. Because the law views LLCs and corporations as separate entities from their owners, those businesses can take on debts by themselves.
With a sole proprietorship, Florida business owners subject themselves to personal liability for any debts or obligations incurred by the business. This is true even if you operate under a fictitious name. As your business grows, this can pose a significant risk; your assets and personal finances are exposed and may be taken to pay off debts or judgments incurred by you, your business, or your employees.
More Difficulty Securing Funding
If you plan to rely on investments to help grow your business, a sole proprietorship may not be the best option. Because there are no stocks or other ownership interests to sell, sole proprietors must rely on personal loans rather than traditional “investments.” Investors may be less willing to provide funds under this arrangement.
Simpler Taxes Mean Fewer Deductions
Although tax rates may be higher among LLCs and corporations, they are permitted to make certain deductions for business expenses. Sole proprietors do not have this luxury, and depending on the cost of doing business, you may end up paying more in taxes as a sole proprietor.
To avoid these issues, it is important to speak with a Florida business law attorney or tax professional about your situation. They can help you determine what kind of business structure will benefit your business the most.
Other Businesses May Be Hesitant to Work With You
Whether it is true or not, many businesses are under the impression that an unincorporated business is less stable or professional than an incorporated one. Therefore, some businesses may be less willing to engage with your business if it is a sole proprietorship.
Selling Your Business Is More Difficult
When you’re ready to sell your business, having a sole proprietorship can make this process more difficult. In addition to trouble finding interested buyers, you will likely have more trouble properly valuing your business. If a merger or sale is in your long-term business plan, this is a risk you should keep in mind.
Need Help Deciding If a Florida Sole Proprietorship Is Right for You?
The business law attorneys at BrewerLong are here to help. We provide each one of our clients with personal attention and our years of experience, and we’re proud to say we’ve helped hundreds of Florida businesses with their legal issues. Contact BrewerLong today online or by phone at 407-660-2964.