SMALL BUSINESS STARTUP SERIES: SOLE PROPRIETORSHIP

This is the first installment in our series on starting your small business, securing funding, and navigating taxes.

Starting a business is always exciting, but it also has tax implications. So, the business structure you choose matters. A lot. In this post, you’ll learn how to determine if a sole proprietorship is the best structure for getting your new business off the ground. And if so, we’ll show you how to get one started in Louisiana.

Startup questions to consider

A sole proprietorship is attractive for startups because it is simple and inexpensive to set up. And that can be tempting when you have a laundry list of other things to do for your business. But ease of setup should not be the only consideration.

One of the first things to consider is how much liability risk your new business carries. If the chances are high, then a limited liability company, or LLC, will provide greater protection for your personal assets. With a sole proprietorship, debtors can go after things like your home and vehicles to collect a debt. That’s less so the case with an LLC.

The next consideration is how many owners the company will have. If it’s just you, then a sole proprietorship is an option. It can be even better if you plan to remain a solopreneur.

Another thing to think about is cost. Starting and maintaining an LLC can sometimes run over $1,000 annually. If your business is a small side hustle, the extra costs may not be worth it.

The flexibility of a sole proprietorship

If you decide on sole proprietorship, realize it doesn’t have to be permanent. In fact, it isn’t uncommon for sole proprietorships to later transition to an LLC or other tax structure.

Even if you remain a solopreneur with low liability concerns, there are certain tax advantages of moving to an LLC once you pass a certain income threshold. Next week’s post on LLCs will give you a closer look at that. For now, it’s enough to know that starting out as a sole proprietorship doesn’t have to be a permanent solution.

Now that you are closer to a decision let’s take a closer look at how to set it up

Setting up a sole proprietorship in Louisiana

Getting your sole proprietorship in Louisiana is simple.

First, pick a business name. State law requires it to be distinguishable from other business names. You can check that through business filings on the Louisiana Secretary of State website.

Next, file your business name with your local parish clerk of courts using this document.

Then, go to Louisiana geauxBiz to determine if your startup requires business or professional licenses. Also, check with your local governments for any required regulations, permits, or zoning clearances.

That’s it! You’re ready to roll.

The Bottom Line

A sole proprietorship structure can lessen initial business startup costs and red tape. But it isn’t always the best choice. So, check with a CPA and trusted business advisor to determine the best action to take.