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Debunking Myths About the Advantages of Being a Sole Proprietorship

Running your San Diego business as a sole proprietorship may seem like a good idea, but the so-called advantages of not being a corporation are myths. Here are some of the top myths debunked.

No Wasted Time on Legal “Stuff”

Some believe that having a corporation is a waste of time. Yes, it is true that a few hours a year must be spent focusing on corporate formalities like setting up the company, annual reports and filings, having shareholder and board meetings, and the like. The myth here is that the time is “wasted.” First, any meetings involving your business are almost always productive from a business standpoint. Second, the time spent on corporate formalities is an investment in protecting your personal and family assets. The largest benefit of being a corporation is that your personal and family assets are shielded from being seized to pay business debts and obligations. As an example, if the corporation pays you a monthly salary, that money becomes a personal/family asset and, under most circumstances, cannot be taken to pay a court judgment against your business. The bottom line is that the few hours of time every year that you invest in corporation meetings serve to accomplish the protection of your personal and family assets. That is not “wasted” time. Furthermore, retaining an experienced San Diego corporate attorney can minimize the time spent on corporate formalities, maximizing your time to focus on running your business.

No “Wasted” Money

Yes, setting up a corporation involves filing fees and other costs. Again, the myth here is that the money is “wasted.” It is not. The money is invested in creating the corporate shield. Money invested is not money wasted. As just discussed, the corporate entity protects your personal and family assets. If done correctly and legally, money paid in wages and stock dividends is transformed from a business asset into a personal asset and becomes protected by the corporate shield. The same is true for taxes. Some argue that a sole proprietorship is the best way to do business because it avoids double taxation. Yes, it is true that the California corporations must pay corporate taxes. A good tax accountant can help reduce the tax burden and taxes are part of the investment that is made to obtain the corporate shield. Investing in the corporate shield is smart.

Sole Proprietorships are More “Meaningful”

Another myth about sole proprietorships is that they are more “meaningful” and “impactful” since customer service can be direct, personal, and participatory. This is a myth. Meaningful, impactful relationships are created by the people involved, not by the legal form of the business. A well-run corporation can provide face-to-face and personalized customer service just as easily as a sole proprietorship. Similarly, a corporation can choose to work with other small businesses and other small firms and can be social responsible. The business form does not mandate what the business does or the manner in which it interacts with customers and society.

Sole Proprietorships are “Cheetah-Fast,” Unlike Corporations

Another myth is that corporations are slow and lumbering, while a sole proprietorship is “Cheetah-fast”. This is a myth. Again, people matter; not the corporate form. A well-run corporation can be just as innovative, fast, and adaptive as a sole proprietorship.

Customers do Not Like Corporations

This is definitely a myth. The “Inc.” or “LLC” in your business name can actually enhance your business reputation. Customers see corporate status as a sign of success and sophistication.

Contact San Diego Corporate Law

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.