Business Startups: Establishing A Sole Proprietorship In Colorado
Starting a new business venture is exciting. But uncertainty can lie in not knowing how best to start-up your startup. Our business law attorneys at the Law Offices of Clifton Black, PC, have been helping entrepreneurs and business clients in Colorado Springs and its surrounding communities for decades.
Moving forward with a new business venture doesn’t have to be overwhelming when you have legal guidance from business startup attorneys who have an intricate understanding of the nuances of the applicable Colorado laws.
What Is A Sole Proprietorship?
A sole proprietorship is simply a business that is owned and operated by a single person. A sole proprietorship is not incorporated. The owner and the business are deemed to be the same person under the law. The owner of the business, or owner of the sole proprietorship, receives all profits, if any, from the business.
Forming A Sole Proprietorship
The owner of a sole proprietorship does not have to take any formal action to be a business owner or a sole proprietor. Merely operating a business as an individual person without creating a formal business entity makes a person a sole proprietor. If a person elects to open a lawn mowing business to earn some extra cash, that person is acting in the capacity of a sole proprietor. You can still name your business, even if you are operating as a sole proprietor. In this case, a sole proprietor can create a DBA (doing business as), a trade name, or a fictitious name.
Compliance With Licensing Requirements And Other Regulations
A sole proprietor still needs to comply with licensing requirements. For example, a contractor who is remodeling a bathroom may still need to possess a contractor’s license and obtain building permits when required for certain work. Different industries may have different regulatory agencies. In addition, there may be federal, state or local regulations that need to be followed. For example, if you run a restaurant, you will need health department permits. If you are starting a marijuana business, you will need to satisfy licensing requirements and make sure you are in compliance with state regulations. Make sure to check with local and state agencies to understand all required permits and regulatory compliance regulations.
Obtaining Liability Insurance For Your Sole Proprietorship
Securing liability insurance for your business is crucial if you are operating as a sole proprietor. Liability insurance can protect your personal assets from business-related claims. Without it, you could be personally responsible for any debts or legal issues your business encounters.
Paying Taxes As A Sole Proprietor
Income from a sole proprietorship is not taxed at the business level. It is deemed income of the individual and the individual pays income taxes. The sole proprietor is able to deduct operating expenses related to the business against their income.
The Disadvantages Of Choosing A Sole Proprietorship As Your Business Entity
Although a sole proprietorship is an easy and inexpensive way to start a business, the owner assumes and accepts all risks on behalf of the business. The owner is responsible for all of the business entity’s debts, liabilities and losses.
Generally, our experienced business formation attorneys strongly encourage business startups and owners to choose other business entity formation models. This is because if the business fails, the creditors can come after the business owner for the debts. A sole proprietor could lose personal assets trying to cover the debts of the company. These personal assets can include their home, money in banks, and garnishments against paychecks.
Transitioning To Another Business Structure
As your business grows, if you began your business as a sole proprietor, you might consider transitioning from a sole proprietorship to another structure, like an LLC or corporation. This change can offer benefits like liability protection and tax advantages.
An experienced business formation attorney can help you navigate this transition smoothly. Our legal team can assist with paperwork, state filings and legal compliance. Establishing a relationship with a business law attorney can also help your company as it grows and evolves. An attorney can help you with day-to-day legal needs and provide advice with respect to contracts and agreements. An attorney can also help facilitate conflict resolution should you need it.
Consult A Colorado Springs Business Attorney
Our business law attorneys are available for consultation appointments. This is a great opportunity to ask questions about your specific business scenario and let our lawyers tell you more about how they would customize a solution for your legal challenges.
To schedule an appointment, you can send us an inquiry using our online form. You can also schedule a consultation by calling our office at 719-328-1616.