Understanding the Difference Between Sole Proprietorship and Individual

Although the phrases “sole proprietorship” and “individual” are sometimes used synonymously, they are not the same. Although they both relate to a single individual who owns a business, each phrase has unique legal and tax ramifications. This article will examine the distinctions between a sole proprietorship and an individual and address some associated queries.

A lone proprietor can indeed employ people. In fact, when a company expands, it can be necessary to engage staff to aid with workload management. It’s crucial to remember, too, that having staff implies having to handle more legal and tax obligations. A sole proprietor must abide by all applicable federal and state employment laws as an employer, including those pertaining to minimum wage, overtime, and workplace safety.

A business owner who runs their company as a sole proprietorship is known as an individual sole proprietor. This indicates that the owner’s personal liability for the debts and obligations of the business is infinite and that the business is not a separate legal entity from the owner. Similar to a sole proprietorship, a single member LLC offers some protection from personal liability. The business is a separate legal entity in a single member LLC, and the owner’s liability is often constrained to the amount of their investment in the company.

A platform called DoorDash links clients with nearby restaurants for delivery. DoorDash employs drivers as independent contractors, not as employees. Drivers are therefore responsible for paying self-employment taxes on their income since DoorDash does not deduct taxes from their paychecks.

A platform called Postmates connects customers with neighborhood couriers for delivery. Postmates couriers are treated as independent contractors, not employees, similar to DoorDash. As a result, they are obligated to pay self-employment taxes on their income. It is crucial to keep in mind though that some Postmates couriers might decide to run their own small business as a sole proprietorship or an LLC with just one member.

Sole proprietorship and individual are terms that are sometimes used interchangeably, although they have different legal and tax ramifications. An individual sole proprietor is a business owner who does business as a sole proprietorship, and a sole proprietor can have staff. Drivers for DoorDash and Postmates are regarded as independent contractors rather than employees, and as such, they are obligated to pay self-employment taxes on their profits. In general, it is crucial for business owners to be aware of the legal and tax repercussions of their organizational structure and hiring practices.