When opening any type of business and you did not form a corporation or partnership, you are automatically classified as a Sole Proprietorship. You have complete (100%) ownership of your company and all income and losses passes through you and your personal income. Sole Proprietors usually sign business documents in their own name unless they are operating as another name (See Fictitious Business Name (DBA)).
Advantages
- Simple, easy to setup, low cost
- No shareholder/quarterly meetings
- No need to pay unemployment tax to self
A lot of low risk business prefer to keep their Sole Proprietorship status but higher risk businesses that involve food, dangerous equipment, serving children and other businesses should consider establishing a corporation to protect themselves and their business. When filing your taxes you must fill out Schedule SE (Form 1040).
Be sure to speak with an accountant to discuss the correct ways to settle taxes and file your income because an Sole Proprietorship is a pass-through entity. This means that your tax obligations will pass through your personal tax return.
Disadvantages
- Complete liability
- Cannot divide up business
- Cannot raise capital and give % to others
As always, I am not a tax professional or attorney (nor do I want to be one :D). Please consult professional guidance when dealing with critical areas of your business.