Because there are so many sole proprietor businesses, two questions come up over and over: Can you sell a sole proprietor business? and Can a sole proprietor have more than one owner?
Can you sell a sole proprietorship?
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| Pirate Bob, Sole Proprietor |
Yes. You are not selling stock like you would in a corporation, and you aren’t selling partnership interest like you would in most LLCs. What you are selling is the assets. According to IRS rules, you personally own the assets of your business. So you can decide what to include in the sale of the business. Besides the physical assets, you’re also selling your list of customers, your existing good name as a business, and other intangible assets. Sometimes you’ll see these intangibles called “blue sky value” or “good will.”
The new owner pays you whatever price you agree upon, and you transfer ownership of the assets. At the very least, you issue a Bill of Sale. For some assets, like autos, you’ll need to do the usual legal transfer of ownership.
Can a sole proprietor have more than one owner?
No. A sole proprietor is one person.
If you are considering a short term project with two or more sole proprietors, you might use a Joint Operating Agreement or other legal agreement to document your arrangement. That way each individual remains a sole proprietor. If you don’t create some form of agreement, you may be considered a general partnership, which is not a great deal.
If you are wanting a more long term arrangement to work together, or you want to give or sell ownership interest in your sole proprietorship, then you’ll need to create a different type of business entity. See When NOT to Be a Sole Proprietor.
If you have more questions about sole proprietorship, ask in the comments.
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This is really useful, thanks. How you structure your business has a significant impact on liability and your taxes, so getting it right at as you plan your business is critical. Lots of great advices about business structure and options for small business owners and start-ups from the government here: http://business.gov/register/incorporation/
Thanks, Caron.
Structuring a business should be a first step in planning. Remember, you can change your structure down the road, from say a sole proprietor to a LLC but switching back and forth is not a good idea! As my friend Glenna Mae would say, you are asking for an audit! Even husband and wife must choose who the owner is with a sole prop. After all, sole means one!
Thanks, OkieJ. Great to see you here again!