Why a Sole Proprietorship is the best way to get your Side Business started

For the fledging home business or side business, the main business structures to consider are: Sole Proprietorship, LLC (Limited Liability Company), S Corp or C Corp.  If you don’t have much business experience, the best thing to get started is the Sole Proprietorship.  It is simple, has very little tax consequences, and is something easy to change later on.

What’s a Sole Proprietorship: this is the simplest entity you can setup.  Both the owner and the company are considered to be the same entity for Tax and Liability purposes.  It requires very limited paperwork (file a request for a TIN, which you can do online), it has minimal filing requirements with the Federal government and your state (if any for most states).  And is about even with with your local government, and the main thing you might have to worry about is zoning for your home business (true for all others). Taxes are simple too.  Just a few more forms on your tax return.

All other entities (LLC, S Corp, C Corp) you should consider are actually separate entities and provide protection from liability (i.e. you are less likely to lose your home in case you are found to be liable as long as you follow the rules and keep the entity separate enough).  Depending on your state of residence, they will usually set you back with higher taxes, higher filings requirements, and record keeping.  So again, why get bogged down in those details as you focus your energy on getting your business off the ground.

In a state like California, a Corporation or LLC will set you back $800 before you even made a cent regardless or where that company is registered since as a home business, your main place of business is your state.

The main drawback, though, and why most people will want to switch entity type later on once revenue is high enough, and stakes are higher: no liability protection.

So given the fact that it is easy to setup, and easy to change later on, this is clearly the best way to get a side business started (it also applies if you are starting a home business).

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