This is the simplest form of a business setup that anyone can start. In general, the only thing it may require is a business license, also known as an occupational license. Also, if you are engaged in the business of goods or merchandise, you may also need a Sales & Use tax identification number. In many localities, an occupational license may not even be necessary if you are starting out from your home and doing business on the Internet only. Check with your local licensing agencies usually, either the city, or the county, or both.

One more item of importance is if you use your business name other than your personal name; you may also be required to have your business or trade name, also known as “fictitious name”, be registered with the your State or local registration agency. For example, someone’s name is John Smith and he is in business of selling computers. If he uses his business name as “John Smith Computers” he may not need any trade or business name registration. As opposed to if he uses a business name of “Super Computers”, he may need the required registration. By the way, this is a very simple procedure in many states. Refer to Appendix A, for contact numbers in you state.

You may need a Federal Identification Number (FIN) [confusing as it is, it has a few alternate names, as well, it is also know as, Taxpayers' Identification Number (TIN), or Employer Identification Number (EIN)]. This federal number you will only need if you hire an employee, otherwise, everywhere else, your social security number can be used. The Federal Identification Number is obtained by filing a federal form (SS 4) with the Internal Revenue Service (IRS). You may also obtain this identification number by calling IRS directly. Refer to Appendix A, for contact number.

So basically, with a few licenses, permits and identification numbers you are in business. This is the least costly method of doing business. The only requirement you must follow is an accurate accounting of income and expenses. At the year-end, you will include either profit or loss from your business on Schedule C and attach them to your federal personal income tax form (1040) and then you are done. Sole Proprietorship is easy to set up, easy to manage, and entails the least cumbersome tax filing.

As easy it sounds, however, this type of business set up does have some disadvantages along with several advantages, which are summarized below:

Advantages:
	It is a very simple and easy way to start a business
	It offers greater freedom of action because of the sole ownership status
	It makes the decision making process very simple, you call all the shots
	Relatively low cost of operating business
Disadvantages:
	The owner assumes personal liabilities for all business debts and judgments
	In case of injury or personal illness, the business may suffer
	Due to personal involvement the business funds/assets can get mixed up with personal items
	Being a solo you make all decisions and get very limited help from the other members of your team (you employees or other officers)
	Its difficult to attract a good employee pool when you are operating as a sole proprietor
	Many corporate benefits may not be available to a sole proprietor

In a nutshell, it has several advantages but the biggest drawback seems to be unlimited liability to the owner in case of any injury, liabilities, or lawsuits. This is particularly scary given the litigious (lawsuit crazy) environment we all live in. Nevertheless, it is attractive due to the simple nature of set up.

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