What is a Sole Proprietorship?
May 24, 2022
What is a Sole Proprietorship?
If you’re starting a business or beginning to toss the idea around, you may have considered registering your business with the State of Tennessee, or maybe you’ve already started operating just under your name or under a fictitious business name.
As I previously mentioned in my prior post regarding limited liability companies, one of the first, and most important, things you do when you start your new business is deciding the business structure.
In Tennessee, there are several different entities to choose from: sole proprietorship, partnership, corporation, limited liability company, etc. Each different entity will have its benefits and disadvantages. This blog will solely focus on sole proprietorships in Tennessee.
A sole proprietorship, or maybe you know it by a commonly-used short form “sole prop”, is a business that is owned by a single individual. Being a sole proprietor doesn't mean that you necessarily operate the business alone; you might want to hire employees and/or independent contractors. Even if you hire such people, you can still operate as a sole proprietorship. The key to a sole proprietorship is single ownership.
Here are five things to consider if you’re thinking about operating as a Sole Proprietor in Tennessee:
- A sole proprietorship in Tennessee is extremely simple to start. You just simply start operating your business. One benefit to a sole proprietorship is that it does not require any filing, registration, or fees with the State of Tennessee. There are some basic steps that you should follow to make sure that you are operating in compliance with local, state, and federal laws:
Check the availability of your business name; - Register your business and obtain any required local licenses;
- Determine what tax obligations your sole proprietorship will have; and
- Open a bank account
- A sole proprietor is personally liable for the debts and obligations of the business. You will be personally liable for all debts and obligations of the business, including being personally liable for the actions of your employees. If someone obtains a judgment against you, the plaintiff can seek to collect through your personal assets.
- Tax treatment – a sole proprietorship itself does not pay a separate income tax at the entity level. Instead, the owner of the sole proprietorship reports the business’s profits/ losses on his/her individual income tax return and pays tax accordingly. Additionally, sole proprietors need to be aware of any local/ state taxes, which may include business tax and sales tax.
- Management - As the owner of a sole proprietorship, you exercise complete control over the management of the business. In Tennessee, there are no special requirements regarding the management structure, so as the owner, you exercise complete control over the management of the business.
- Do you need a lawyer? No, you do not. As stated above, sole proprietorships are easy to start, but hiring a lawyer at the beginning, even if just to consider potential issues, can save you the trouble of headaches and heartaches later down the road, including: employment issues and tax withholding obligations; determining applicable licenses; preparing/reviewing vendor agreements; intellectual property protection, etc. Each situation, including each state, is different, so an attorney can help you weigh the benefits, consequences, and potential ramifications of forming and operating your business.
About the Author: Patrick Morrison is an attorney with Grant, Konvalinka & Harrison, P.C. (“GKH”). Patrick is a native to the Chattanooga area and a graduate from Chattanooga School for the Arts and Sciences. Patrick graduated from Middle Tennessee State University in Murfreesboro, Tennessee and pursued his legal education at the University of Tennessee College of Law.Patrick is an experienced lawyer relating to contracts and business law. To learn more about Patrick or GKH, contact Patrick at 423-756-8400 or by email at pmorrison@gkhpc.com
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
Grant Konvalinka & Harrison, P.C. is pleased to announce that two (2) of its attorneys and counselors are named to the 2024 Mid-South Super Lawyers Edition. In addition, three (3) attorneys were recognized in the Rising Stars category this year. The selected attorneys are recognized for this achievement of professional excellence and peer recognition. Each year, the Super Lawyers research team recognizes no more than 5% of Tennessee attorneys for this distinction and selects no more 2.5 % of attorneys in a state for the Rising Stars category based upon eligible candidates who are in practice for 10 years or less or 40 years old or younger.
The Grant, Konvalinka & Harrison Law firm is pleased to announce that Amanda Williams and Zachary Atchley have joined the firm as an Associates. Amanda comes from the Golden State of California, specifically San Diego. Amanda attended Boston College and received a Bachelor of Arts degree in Political Science and Economics. Amanda then attended the University of Tennessee College of Law, where she was a student-attorney in the Domestic Violence Clinic and the Expungement Clinic. She was also the Pro Bono Director during her third year of law school. Amanda was previously a summer associate with Grant, Konvalinka & Harrison during law school and joined the firm after her graduation in May 2024. Amanda handles primarily domestic relations issues. In her practice, she addresses a variety of topics such as divorce, child custody, child support, and paternity issues. Amanda strives to give zealous yet efficient representation while helping clients navigate one of the most emotional and challenging periods of their lives. When not in the office, Amanda can be found kayaking the rivers of Tennessee, running along the Tennessee Riverwalk, reading a great book, or cheering for the Tennessee Vols. Zachary Atchley is the second fourth-generation attorney on his father's side who benefitted greatly from the mentorship he received from both his father, Fielding H. Atchley, and brother Trevor F. Atchley, with whom he practiced law before joining Grant, Konvalinka & Harrison P.C. Zachary practices in the areas of General Civil & Commercial Litigation, Financial and Estate Planning, Probate Administration, and Business and Corporate Law. Zachary received his B.A. from Appalachian State University Graduate in 2006. While at Appalachian State, Zachary graduated from Watauga Residential College, an alternative honors program focused on writing, discussion, complex thinking, creativity, community, and curiosity. He received a Master of Public Administration with a Nonprofit Management Concentration from the University of Tennessee at Chattanooga in 2010 and his J.D. from Lincoln Memorial University's Duncan School of Law in 2022. Law is Zachary's second-career as he has over 10 years' experience in nonprofit management, where he specialized in program development, grant writing and administration, organizational planning, and fundraising for nonprofits serving Chattanooga's disinvested neighborhoods and underserved populations. Throughout his life, Zachary has been an active volunteer, involved in both church and civic activities. As a boy scout, he earned the rank of Eagle Scout. His law school emphasized the importance of engaging in community service and pro bono work is an important part of his practice. Zachary regularly volunteers at Chattanooga School for the Arts and Sciences and Center for Creative Arts. where his daughters attend, serves as a Deacon. Sunday School Facilitator, and Worship Leader at First Christian Church Chattanooga, serves as co-president of Barking Legs Theater's Board of Directors, and serves the Citv of Chattanooga as a member of its Beer Board.
Grant, Konvalinka and Harrison congratulates one of their own, David Higney, on being invited to join the Alumni Board of Directors of the University of Tennessee Chattanooga. The University of Tennessee Chattanooga is excited to introduce the new board members. Each member brings a wealth of experience, a deep commitment to our community and a passion for supporting and advocating for UTC. The new board members include: Marla Cobb, David Higney, Joyce Lloyd, Lessie Lyttle, Walker Rhodes, Taylor Rowell, Victor Sims, and Brian Wright.
The Grant, Konvalinka & Harrison, P.C. law firm is pleased to announce that Melissa Weitzel has joined the firm as an associate. Melissa will be practicing in Business and Corporate Law, Financial Services and Transactions, Governmental and Administrative Law, Litigation, and Labor and Employment. Melissa is a Gulfport, Mississippi native and graduate of Vanderbilt University’s Law School. Prior to joining the firm, Melissa worked as a Law Fellow in Vanderbilt University’s Office of the General Counsel where she assisted with a range of higher education matters including finance, labor and employment, intellectual property, and student affairs. During law school, Melissa participated in the Intellectual Property & the Arts Clinic where she represented small businesses in trademark filings and disputes. She completed a full-semester externship with the Office of the Staff Judge Advocate at Arnold Air Force Base in Tullahoma, Tennessee, and a summer internship with USAID’s Justice for All Activity Ukraine. She served on the executive boards of the Space Law Society, the Entertainment & Sports Law Society, and OutLaw. Prior to law school, Melissa attended Mississippi State University where she graduated summa cum laude with degrees in Political Science and History. During her time as an undergraduate, she studied internationally at the University of Oxford and with Cornell University in Turin, Italy. At Mississippi State, Melissa worked as a Student Office Assistant for the Shackouls Honors College, served as Secretary-General of Mississippi Model Security Council, and as Vice-President of the College of Arts & Sciences’ Dean’s Student Advisory Council. Melissa is a member of the Chattanooga Bar Association, the Tennessee Bar Association, Young Lawyers Division, and the Southeastern Tennessee Lawyers' Association for Women (SETLAW). In her free time, Melissa enjoys practicing her (very underwhelming) Russian language skills, being active, and traveling with her loved ones.
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The Board of Directors of Grant, Konvalinka & Harrison ("GKH"), a Chattanooga law firm, are pleased to announce the election of Kane Shepherd as Director at the firm. Kane guides clients in all aspects of real estate matters, financial and lending transactions, and mergers & acquisitions. Kane represents clients ranging from startups to businesses with large international footprints. Kane is a native of Montana who joined the firm in 2019. He received his undergraduate degree from the University of Montana, and received his J.D. with a concentration in business transactions from the University of Tennessee in 2018. Prior to joining GKH, Kane clerked at the Hamilton County Chancery Court for the Honorable Pamela A. Fleenor and the Honorable Jeffrey M. Atherton, and previously worked as a wildland firefighter for the U.S. Forest Service. To learn more about Mr. Shepherd, please visit his webpage at http://www.gkhpc.com . Contact him at 423-756-8400 or by email at kshepherd@gkhpc.com .
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