Ahhh, the good life of sole proprietorship and partnerships. You just get your business license and you’re good to go. No fees to pay to form it. No reports to file.
But there are downsides. All of your personal assets such as your home, cars, boats, savings, etc. are exposed if your employees or partners do anything wrong or a contract goes south. Your business assets such as your equipment, vehicles, and intellectual property are exposed when you do something wrong that’s not connected to your business.
What does this mean? Generally if you’re going into business by yourself, or are already a sole proprietorship, and don’t have employees, business assets, and contracts, then it makes sense to be a sole proprietorship. If you have a partner, an employee, any contacts, or valuable business assets, then you should seriously consider forming an LLC or corporation. Yes, you can always buy insurance to cover these risks, but becoming an entity such as an LLC or corporation is probably the cheapest insurance you can buy.
A few other things to consider:
If you’re a sole proprietorship or partnership and decide to sell your business, you can only sell its assets. If you die, then your business probably dies with you.
If you choose to do business in a name other than your own, then get a business license in that name. Then you sign things in your name doing business as your business name. This is called a d/b/a.