Sole Proprietorship & Investment Accounts

By Jeff Clements

The sole proprietorship is a very common form of small business, and beyond running their underlying business, sole proprietors are free to make investments and hold assets in investment accounts. These accounts can be used to augment savings for the business, to speculate on specific investment opportunities or to offset financial risks encountered in the sole proprietorship's business operations.

Sole Proprietorship

A sole proprietorship is a business activity operated under the name and legal responsibility of an individual owner. It does not involve any partners or shareholders, and generally can pursue the same type of business opportunities as other forms of business, including investments, trading and hedging activities.

Individual Assets & Income

All business and investment assets of a sole proprietorship are titled in the owner's name, and all business and investment income is the owner's personal income. This is unlike other forms of business, and is true even if the sole proprietorship decides to run the business under a trade name for marketing purposes.

Ready to start your LLC? Start an LLC Online Now

Alter Ego

A sole proprietorship is not an independent business entity like a corporation or limited liability company. A corporation or LLC can take its profits and invest the money in its own business name separate from the owners as individuals. However, any business income that a sole proprietorship places into investments is made in the owner's personal name since the sole proprietorship is his alter ego.

Vulnerable to Creditors

Since the sole proprietor does not have the shield of a corporate entity to protect him from creditors, the owner's personal creditors can sue him to access his investment accounts and other assets set aside for the sole proprietorship to satisfy his personal debts. This can hurt the business's investment strategies and interrupt the underlying business if investment funds are needed to fund its operations.

Ready to start your LLC? Start an LLC Online Now
How to Protect Business Assets in an S Corporation vs. Partnership
 

References

Related articles

Does Filing a Business Bankruptcy Take One's Home?

Depending on how your business is structured and what type of bankruptcy you file, filing bankruptcy on business debts could cause you to lose your home. Generally, if you own a portion of a business that does not provide personal liability protection, such as a sole proprietorship or partnership, personal assets including your home could be taken in a Chapter 7 bankruptcy proceeding.

LLC & Ownership Liability

The owners, who are known as members, of a limited liability company often choose this business structure because it protects their personal assets that do not relate to the business. However, the members may be personally liable when their actions are outside the scope of the LLC; they are personally liable if they offer creditors personal repayment guarantees or make unauthorized decisions on behalf of the LLC.

How to Create an LLC for Investments

Limited liability companies, or LLCs, are flexible business entity structures that have characteristics of a corporation as well as a partnership. However, each state can impose different requirements to create a LLC, though in most jurisdictions, the formation process is similar. Moreover, most state laws allow you to form a LLC for any legitimate purpose, such as to hold and trade investments.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

The Top Ten Risks in a Sole Proprietorship

A sole proprietorship is the most basic form of business -- where the owner is in business for himself as an individual ...

How to Get a Tax ID for an LLC Company

It can be highly advantageous to organize your small business as a limited liability company, or LLC. An LLC is a ...

What Will Happen to My Business If I File a Personal Bankruptcy?

Bankruptcy may be a viable solution if your have more debt than you can handle. However, if you are involved in a ...

How to Find a Company's EIN

An Employer Identification Number for a business entity is analogous to a Social Security number for an individual. The ...

Browse by category
Ready to Begin? GET STARTED