The main disadvantage of doing business as a sole proprietor (one person) or partnership (two or more individuals) is the risk of liability. You have no limited liability protection like you do if operating in the corporate or LLC form. This means your personal assets are subject to being taken if someone files a lawsuit and gets a judgment against you. Also, you are not able to reduce the FICA (15.3% self employment tax) as you may be able to do by using an S corporation.
Did you like this? If so, please bookmark it,Practical Suggestion: If you are just testing a business idea or concept, it may be okay to start as a sole proprietor or partnership for a short time until you know if the project is going to work. However, keep in mind that if you get sued during the time you operate as a sole proprietor, even though you may incorporate or form an LLC later, you will have no liability protection for events that occurred before you formed the entity.
