A sole proprietorship is the simplest and easiest form to do business. A sole proprietorship is a business with only one owner. They are so easy to form that often times a person will not even realize they are operating as a sole proprietorship because. For example, the photographer who takes photos at a wedding over the weekend is a sole proprietor as well as a salesperson receiving only commissions.
Even though there are no corporate formalities as you have in a LLC, Corporation, or S Corporation, you may still need to comply with local laws. Further, if you are operating your business under a different name, you will need to file a DBA with the County Recorder’s Office and publish the information regarding your DBA in a local newspaper. If you fail to file your DBA, California will not allow to file a lawsuit. It is also important to register your business with a local city or county to receive a business permit. Most local jurisdictions require businesses to receive a business license prior to opening.
The biggest disadvantage to a sole proprietorship is that a business owner will be personally liable for all business debts. Business debts include invoices from vendors, debts, or judgments. Personal liability for business debts can be major issue if you have substantial personal assets or are involved in a risky business that can be more subject to lawsuits. Unfortunately, once the debt is incurred or lawsuit filed, you would not be able to change your business entity to avoid personal liability. Because a sole proprietor may be liable for business debts, it is wise to buy comprehensive insurance to adequately cover any liability.