Are you considering structuring your business as a sole proprietor? If so, then there are a couple of important things that you should know before you decide upon this type of business structure. While operating as a sole proprietor can be a good idea for tax reasons, you are also responsible for all debts, liabilities, and obligations your business may encounter. Many business owners decide to incorporate a business for one simple reason: to avoid becoming personally liable for business obligations. The different types of legal structures (read: Incorporating Your Business: Types of Legal Structures for New Companies) allow varying degrees of protection from bankruptcy, lawsuits, and other business obligations. Operating as a sole proprietor cannot protect you from these things.

When it comes to structuring a company as a sole proprietor, you are still liable for anything that happens with your company. For example, if you have taken out loans to start your company and are unable to pay them back, lenders can seize both your business and personal assets until the money that you owe has been collected.

Another drawback to a sole proprietorship is that you may not be able to gather as many of funds from lenders as you would with a corporation. As a sole proprietor, the amount of money that you can gain from a lender largely depends upon the type of personal collateral that you have. It also is difficult to find investors who will invest in unincorporated businesses.

There are also a couple of benefits to becoming a sole proprietor including numerous tax benefits. While other types of incorporations are taxed heavily, a sole proprietor is only taxed on the business profits. In addition, the costs associated with setting up a sole proprietorship are low when compared to other types of businesses. You can also take comfort in knowing that becoming the sole proprietor of a business means having absolute control over that business.

Since attempting to form a corporation can be tricky, it’s a good idea to speak with an online formation specialist. An online formation specialist can help guide you through the incorporation process, so that you can decide whether or not a sole proprietorship is the right option for you. After you’ve made a structuring decision, you can incorporate your business online simply and efficiently.