Before we tackle sole proprietorship contracts, we need to define exactly what a sole proprietor is and how it differs from being an independent contractor. While this may seem like a minor distinction, it’s vitally important to set up your business the right way. Success breeds success, so why not start your business on the most successful foot?
Both sole proprietors and independent contractors are single-entity businesses. This means you are self-employed. Sole proprietorships are single-entity businesses that have not registered with Florida’s Division of Corporations. Independent contractors, on the other hand, work for another business entity, though they are not considered an employee. Given the similarities between the two, the debate of sole proprietor vs. independent contractor is a largely tax-based one.
Sole proprietors pay their business income taxes by completing a Schedule C (also known as Form 1040). You’ll also need to fill out a Schedule SE form, which determines Social Security and Medicare taxes. Independent contractors receive their income under something called a 1099-MISC form. They then complete Schedule C and SE forms to pay taxes on their 1099 income.
Now that we’ve explored the difference between a sole proprietor vs. independent contractor, let’s turn our attention to the importance of sole proprietorship contracts. While all businesses live or die by the strength of their contracts, you want to be especially mindful of your contracts when operating a sole proprietorship.
Sole proprietorships are what are known as “pass-through businesses”. This means that all income passes through the business to the proprietor. So do legal responsibilities. You want to make sure that you won’t be held responsible for anything another business entity might do; so, the question becomes, what type of sole proprietor contracts should you use?
The most common type of contract you’ll use is for clients. If you start a pool cleaning business, for example, you’ll write a contract for every house you service. Sole proprietor contracts for clients should include:
As your business grows, you may decide to partner with another business entity (sole proprietor or independent contract). This introduces sole proprietorship and partner agreements to the equation.
A partnership agreement is a verbal or written contract between two or more people who are going into business together. The agreement outlines conditions such as individual work responsibilities, division of revenue and profits, and acceptable business practices. When multiple sole proprietors decide to form a partnership, the idea of sole proprietorship and partnership agreements is born. It’s important to note that while your partnership agreement can be oral, it’s always a smart idea to write it down. This type of written contract will become invaluable should any commercial disputes arise in the future.
With over twenty years of combined experience, the corporate and business attorneys at Loshak Leach LLP have a proven track record of success representing Florida businesses. We know what it takes to write secure sole proprietorship contracts and help you realize your business goals. Contact us today at (954) 334-1122 to get started!