By Jonathan Feniak, Esq., MBA
Sole proprietorship (sole props) are businesses that just one person runs without registering a business in Colorado. This is a common way many people's passions and hobbies start. A person makes something to sell or helps out friends with their expertise in a particular area, that's a sole-proprietorship!
Not everyone with business ventures will form an LLC or Corporation immediately. However, if you’re planning to form a business entity in Colorado, you should also read up on business licenses, articles of organization, LLC taxes, and EINs.
However, sole proprietorships are not always in the best interest of you and your company. Becoming a "real" company brings significant advantages, e.g. protection from liabilities, potential tax savings and privacy.
Why would an owner choose to remain a sole proprietor? When does forming a Colorado LLC make more sense?
No. A limited liability company will at worse pay the same as a sole-prop, but will often pay less in taxes. This is because the US tax code is written to encourage business formations and business ownership!
They each have one owner, but they are not the same. A sole proprietorship is not a formal business entity which means it's not registered anywhere. The person is the same as the business. An LLC, even with only one owner, is a formal company. This means an LLC has limited liability, the opportunity for privacy and may pay less in taxes. These are not possible with a sole-prop.
Not usually. However, if you have employees or file a DBA then one is usually obtained. Most often you simply use your Social Security Number as there is no formal distinction between you and the company.
Yes, but we recommend using a professional formation service. For example, our service provides you with an operating agreement, a registered agent (to keep your home address private), and the opportunity to speak with an attorney if needed.
Don't let the perceived simplicity of a sole-proprietorship fool you. Even if you don't use our service, we highly recommend forming an LLC or a Corporation where there is an active business.
Best of all, it is actually very affordable to incorporate your business. Doing so will not take long or much capital and will deliver a range of advantages. Depending your situation, you may get even more benefits with an anonymous LLC. Find out more about forming a Colorado LLC, registering a Colorado business and our registered agent services.