Can Sole Proprietorships Have Multiple Owners?

By Elizabeth Rayne

When forming a new business, it is important to determine which business structure is appropriate. You should consider the number of owners, and also your potential personal liability for the business. While a sole proprietorship is one of the easiest structure to form and operate, it is not appropriate for every business. If you want to have more than one owner, a partnership may be more appropriate.

When forming a new business, it is important to determine which business structure is appropriate. You should consider the number of owners, and also your potential personal liability for the business. While a sole proprietorship is one of the easiest structure to form and operate, it is not appropriate for every business. If you want to have more than one owner, a partnership may be more appropriate.

Sole Proprietorship Basics

Every state recognizes sole proprietorships as a business entity. In many states, a sole proprietorship does not require registration with the state, but is automatically formed one an individual does any business. In this type of business, a single person owns the business. Essentially, the business operates as an alter ego of the owner. Unless the owner files for a fictitious business name, the business is operated under the owner's name. Further, the owner remains personally liable for the debts of the business. At the same time, the business is usually not responsible for business tax. Instead, all of the income and losses are reported on the owner's tax return of the owner.

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Limitations on Sole Proprietor Ownership

A sole proprietorship is not an independent entity, but is instead the owner's alter ego. This means that when the owner dies, so does the business, which is not the case for corporations or other independent entities. The owner of a sole proprietorship is solely and personally responsible for the business. As a result, the business cannot, by definition, have more than one owner. The business is called a "sole" proprietorship because it is the business activity of an individual.

Partnership Basics

When two or more people want to form a business together in a similar fashion to a sole proprietorship, they will form a partnership. Like a sole proprietorship, a general partnership often does not require registration with the state. Instead, the partnership is automatically formed when two people start doing business together. When a partnership wants to do business under a different name than the owners' names, it is also required to file for a fictitious business name with the state.

Partnerships Vs. Sole Proprietorships

Partnerships have a lot of the same advantages and disadvantages as sole proprietorships, but there are some differences. A partnership is relatively easy to form and usually does not have to pay business income tax. Unless the partnership is registered as a limited liability partnership, the partners will remain personally liable for the business's debts. However, the partners in a partnership have the additional burden of determining how the contributions, work and profits will be divided among the owners. As such, there may be additional conflict and disagreement in a partnership that a sole proprietor does not face.

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Similarities Between Sole Proprietorships and Partnerships

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Can I Have a Partner With an LLC?

A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, formed and managed under state law, are relatively simple to set up, and allow for a flexible management structure. Unlike a partnership, LLC owners, known as members, are not personally liable for the debts and obligations of the company.

How to Establish a DBA

A DBA, or "doing business as," is a name you use for your business besides your real name. DBAs are also known as fictitious names or trade names in some states. For example, if you want to call your business "Glamorous Ghost Writers," you have to register that name before you may use it for business. A DBA allows you to have a more descriptive name for your business than just "Jane Doe" or "Kevin Smart, Inc." Even in states where registration is not necessary, you often receive additional protection against others using the same name if you register with the state.

Opportunities of Sole Proprietorships

A sole proprietorship is a simple form of business in which the owner is in business for himself as an individual without any business partners or corporate formalities. Sole proprietorships are not required to comply with complex organizational requirements during their formation or operation, and this simplicity is one of the main benefits of this type of business structure.

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