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Everything You Need to Know About Sole Proprietorship

The FastLane Group is an accountancy and advisory firm with a presence in Hong Kong and Shenzhen. We combine innovation and technology to provide professional services with a particular focus on entrepreneurs, start-ups, fast growing technology companies, angel investors and venture capitalists.

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Everything You Need to Know About Sole Proprietorship

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  1. Everything You Need to Know About Sole Proprietorship

  2. A sole proprietorship is an unincorporated business owned by an individual, which makes it the simplest form of business to start and operate. • Find out more about sole proprietorships and if it's right for you.

  3. What is a sole proprietorship? • A sole proprietorship is an unincorporated business owned exclusively by one person. Millions of sole proprietorships operate in the United States, making it one of the most popular forms of business ownership. Someone is also considered a sole proprietor for tax purposes if they are the sole member of a domestic LLC.

  4. How sole proprietorships work • The key feature of sole proprietorship is that, unlike an incorporated business or partnership, there is no legal separation between the business and the owner. The business is considered an extension of the owner, so the owner is personally liable for any debts or liabilities incurred by the business.

  5. Benefits of a sole proprietorship • A sole proprietorship is the easiest and least expensive form of business to establish and operate. If you operate your business under your own name with no additions, you don't even need to register your business name to start operating as a sole proprietor. This makes the sole proprietorship ideal for business start-ups, freelancers, and part-time and home-based businesses. Other benefits of a sole proprietorship include: • Full ownership • Simpler Taxes and Accounting • Deductible business losses

  6. As a sole proprietor, you own 100% of the business and can make all the decisions. Unlike corporations, sole proprietors are not required to hold shareholders' meetings or vote on management issues. You can also manage your own hours and hours of operation, based on customers' requirements.

  7. Sole proprietorships are much easier to operate from a tax and accounting perspective because you don't need to file a separate business tax return; all income generated by the business is reported on your personal tax form. The business owner receives all profits directly. As with other forms of business, your expenses related to the cost of doing business are deductible from income tax. This includes:  • -Travel expenses • -Car expenses • -Advertising • -A portion of your household expenses if you are operating a home-based business • Business losses can be deducted from other forms of income, so a sole proprietorship that loses money in the early years can deduct losses from personal income, making it ideal for those who wish to transition from employee to self-employed for some time.

  8. Disadvantages of a sole proprietorship • Being self-employed in a sole proprietorship often means having no employees or partners with whom to discuss business issues, explore new ideas, or interact socially. Other major disadvantages include: • -No legal separation • -Exposure to liability • -Business income reported as personal income • -Difficulty getting contracts • -Difficult to sell the company

  9. With a sole proprietorship, there is no legal separation between you and the business, so if the business fails and you incur debt, your personal assets, including your home and any other assets registered in your name, could be seized to discharge liabilities. (which can be unlimited). Also, if you are sued for damages caused by accident or negligence in your business activities, you can also seize your personal property. • While tax simplicity can be an advantage for sole proprietorships, it can also be a disadvantage in terms of flexibility because all business income must be reported as regular income in the year it was earned. Incorporated companies have much more flexibility in how and when owners are paid.

  10. Some companies and government agencies will not deal with unincorporated companies because they consider that a sole proprietorship does not have the same level of legitimacy and professionalism as an incorporated company. Many also believe that a sole proprietorship increases the risk that the tax authorities will treat the person as an employee rather than an independent contractor. • Sole proprietorships can also be difficult to sell because the business is completely tied to the owner. Since there is no distinction between the assets of the owner and the assets of the business, proper valuation of the business can be difficult to achieve. As for the operation, unless the sole proprietor has friends or family who can continue to run the business, illness or injury can affect the continuity of the business. Customer loyalty resides with the original owner of the business and may not easily transfer to a new owner.

  11. About Us • The FastLane Group provides best in class services for businesses looking to operate in Hong Kong, China and ASEAN region. Offering a diverse range of professional services, including accountancy, auditing, company formation and payroll management and HR advisory assistance, The FastLane Group is able to provide a holistic and comprehensive suite of services to our clients.  • Website - https://fastlanepro.hk/

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