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Heard on the Street: The Case for Sole Proprietorship - CWS 30 May 2.10

Contingent Workforce Strategies 30

The trend toward independent work arrangements is increasing, thanks not only to the economy, but also to fundamental changes in the employment market. Those who can do so are changing jobs more frequently and are trading loyalty for opportunity.

However, HR conventions are not supportive of flexible work arrangements, given that employer-provided healthcare is still the norm. Even if a contingent worker gets benefits with a contract, which is usually not the case, those benefits go away once the work contract ends. On the other hand, a 1099 or independent contractor gets no benefits. In addition, increasing focus on worker classifications may have companies evaluating their contracts and relationships with independent contractors as they seek to avoid misclassification risks.

One possible solution to such issues is establishing sole proprietorship. A sole proprietor is the owner of a business entity -- usually an LLC -- that can contract as a vendor, and as such is less a target of the IRS, says Erik Vonk, founder and CEO of BOTH USA. Sole proprietors operating as an LLC also have complete control and decision-making power over the business. There are no corporate tax payments, because the LLC is a 'pass through' entity for tax purposes and it takes minimal legal costs to establish one. All of these benefits make sole proprietorships more attractive to companies than independent contractors. Little wonder that Wall Street Journal reported in February 2010 that sole proprietorships grew from 15 million in 1997 to well over 20 million in 2007.
But there are some disadvantages individuals setting themselves up as such would have to contend with. The sole proprietor can be held personally liable for the debts and obligations of his or her company, and it's not always easy to drum up business. In fact, if a sole proprietor does manage to stay in business, he or she often underestimates the administrative tasks and paperwork that they need to undertake. Sixty percent of these businesses fail because people misjudge this factor.

That's where Vonk's company comes in. BOTH, an acronym for "Back Of The House," handles all the administrative and operational details for the sole proprietors and provides liability insurance and health and retirement benefits. The company's goal is free up the professional to focus on finding new gigs secure in the knowledge that all administrative, operational and regulatory burdens are taken care of. Will it work? Only time will tell.


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