What Is Sole Proprietorship - DSers eCommerce Basics

Sole Proprietorship

In e-commerce, a sole proprietorship refers to an individual operating an online business as a sole owner.

What Is Sole Proprietorship

In e-commerce, a sole proprietorship refers to an individual operating an online business as a sole owner. The firm's owner oversees and supervises all facets of the e-commerce operation, including the creation of the website, the choice of products, marketing, the selling of those products, and customer support.

While sole proprietorship work well for tiny e-commerce stores due to simplicity and costs, their limitations make other legal structures worth considering as stores grow. However, for e-commerce startups, sole proprietorship offer an easy and inexpensive route.

How to Create a Sole Proprietorship

The process of establishing a sole proprietorship is simple. This is due to the lack of the typical legal obstacles you encounter with other commercial organizations. In most circumstances, declaring oneself as the owner and beginning operations is all that is necessary to launch the organization. Depending on where you live, you may take particular actions to start your sole proprietorship formally.

Step 1 - Get your business license and all necessary permissions. In certain states, you must submit applications for permits and support (for business or habitation). Check with your state or county clerk to find out if you require any specific papers to launch your firm.

Step 2 - If your state requires it, you might need to register your business using its “Doing Business As” name. If this isn't the case, you can use an alias, typically just your name. Remember that operating a single proprietorship under your name may have legal repercussions.

Step 3 - Request and receive an EIN. This is a crucial and required step if you intend to hire any staff members or submit tax returns. If none of this applies to you, you may use your SSN. Avoiding errors by consulting a tax counselor is usually a good idea.

Why Is Sole Proprietorship Important?

Here are some reasons why sole proprietorship is a vital business structure:

  • Simple and inexpensive

Sole proprietorship have little to no initial setup costs beyond basic business licensing. This makes them very accessible for entrepreneurs just starting out.

  • Quick to establish

Sole proprietorship have minimal legal requirements, making them one of the most accessible business structures to start quickly.

  • Full control

As the sole owner, the proprietor has complete control over all decisions and management of the business. There are no shareholders or boards.

  • All profits

All profits generated by the business go directly to the proprietor. There are no distributions to partners or shareholders.

  • Flexible

Proprietors can easily change the nature and scope of their business with minimal legal hurdles. Sole proprietorship are a flexible structure.

  • Easy to dissolve

Sole proprietorship can be easily dissolved by simply ceasing business operations. No legal filings are required.

  • Low risk

Since the proprietor is putting up all the capital, there is little to no financial risk to others in starting a sole proprietorship.

  • Well established

The sole proprietorship structure has been used for centuries and remains one of the most common business forms worldwide.

  • Simple taxes

Sole proprietorship report their income and expenses on the owner's personal tax return. There are no separate business filings.

  • Low barrier to entry

Almost anyone can establish a sole proprietorship. There are typically no special skills, credentials, or financing required.

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