Can Sole Proprietorships Issue Bonds?

By Jeff Clements

A sole proprietorship is not an independent legal entity like a corporation or partnership. It is a business activity that is operated by an individual under his own name and personal responsibility; as such, the owner is free to borrow money to finance the venture. Although bonds are a form of debt, practically speaking, the sole proprietorship is not able to sell bonds like large corporations traditionally do simply because of the expense and complexity of complying with the applicable regulations.

Bond Debt

A bond is an interest-bearing form of debt in which the issuer agrees to make specified coupon payments over a period of years to compensate the lender for the time value of money and offer a return on the investment. Thus, a bond is usually a financial loan by an investor to a business such as a corporation or to a government entity.

Security Instrument

Bonds are classified as investment securities and are regulated by state and federal government regulatory authorities. To comply with all of the applicable rules and regulations, public or private bond sales are usually issued through very expensive and complicated processes. Accordingly, for financial reasons, small businesses like sole proprietorships can rarely ever justify pursuing a sale of bonds or other securities.

Ready to start your LLC? Start an LLC Online Now

Debt Financing

The most common type of debts that a sole proprietorship can assume are personal or business loans taken out in the name of the owner from authorized lenders. Additionally, although technically there is nothing preventing a sole proprietor from being able to issue bonds, it is usually cost prohibitive to do so and thus is very rarely done in practice.

Other Capital Raising

If a sole proprietorship wants to expand the business so it can eventually sell stock to raise money, it must incorporate and comply with various state and federal securities laws. These regulations are extremely complex and constantly changing. For purposes of practicality, most small businesses such as sole proprietorships rely on more traditional forms of credit and business profits to fund their expansion plans.

Ready to start your LLC? Start an LLC Online Now
Can a Startup LLC Assume Sole Propiertor Debts & Assets?


Related articles

How to Start an S Corportation With a Personal Line of Credit

A start-up corporation can be funded by infusions of cash from the owners, who are known as shareholders. The law does not place restrictions on the places where an owner can obtain the money to start a business. It is perfectly legitimate for an owner to incur personal debt to capitalize his ownership interest in a business or to lend a new business money that the owner expects to be paid back once the business becomes profitable. Keep in mind, however, to start an S corporation, you must first register the business as a regular corporation under state law. An S corporation is a corporation that elects to pass corporate income, losses, deductions and credit through to the shareholders for federal tax purposes.

What Is the Difference Between a Solo Practice & a Sole Proprietorship?

Selecting the legal structure of a business is one of the first and most important decisions that a new business owner can make. It can dictate the number of owners in the business, the level of formality of the organization and has many important tax consequences. The simplest form of business is the sole proprietorship since it does not involve multiple owners, has simple tax treatment and does not require formal state filings prior to start-up like a corporation or limited liability company. Solo practices in various professions are not restricted to a specific form of business structure; the term solo practice simply indicates that there is a single professional in the practice.

Can an LLC Offer Both Preferred & Common Shares?

A limited liability company, or LLC, is a popular type of business association that offers small business owners flexibility and simplified formalities. An LLC is not required to have multiple owners or a board of directors, and LLC owners can determine how their LLC will be structured and operated by executing an operating agreement. However, LLCs cannot issue stock.

LLCs, Corporations, Patents, Attorney Help

Related articles

What Is a Disadvantage of the Corporate Form of Business Entity?

Compared to other business entities, corporations offer many advantages, such as liability protection and ease of ...

Sole Proprietorship & Investment Accounts

The sole proprietorship is a very common form of small business, and beyond running their underlying business, sole ...

Can an LLC Borrow Money From Individuals?

A limited liability company is a type of business entity that enjoys many of the same powers and protections of a ...

The Drawbacks of a Sole Proprietorship

The decision as to how to structure your business is one of the first and most important decisions you must make. ...

Browse by category
Ready to Begin? GET STARTED