When starting a new business, the founder must make the decision of what title to don as the owner and first employee.
In this article, we discuss the sole proprietorship in terms of business operations. We then examine the considerations for what title the owner should hold.
What is a Sole Proprietorship?
A sole proprietorship is not a business entity. There is no filing with the state to bring a sole proprietorship into existence. It involves a single individual who exercises sole ownership and control over a commercial activity. The commercial activity must be carried on with the purpose of generating either a profit or a loss. The sole proprietorship thus arises by default. The one limiting factor is that there can be only one owner. If the sole proprietor provides any level of ownership to another individual, the sole proprietorship automatically becomes a general partnership.
A sole proprietorship can hire employees as part of the commercial activity. The sole proprietor does not have to work or take part in the business activities or operations. She can hire individuals for any function necessary of the sole proprietorship. She must simply maintain sole ownership of the entity. As sole owner, she ultimately remains in control of the business, as she has the power to dissolve the business or make any decisions concerning the business or its operations.
Titles for a Sole Proprietor
With an understanding of the ownership and control structure of the sole proprietorship, we can now examine the considerations for what title the sole proprietor should hold. It is important to remember that there are really no legal limitations on the use of a title for the sole proprietor. The only possible exception is where the title would be deceptive to the public or third parties dealing with the business. This could be the case if the sole proprietor attempted to deceive others as to who was the actual owner of the company. For this reason, most states require a sole proprietorship that operates under a name other than the sole proprietor’s name to register a “doing business as (D/B/A) with the state or local governments.
Let’s begin by identifying some possible titles.
Owner – The title of owner is self explanatory. It signals to the world that an individual holds all of the legal rights in the sole proprietorship.
Founder – Founder signals to the world that the individual brought the sole proprietorship (commercial activity) into existence and is still involved with the company.
Principal – Principal is generally used with a professional services firm that employs more than one professional service provider. It generally designates a level of control or responsibility for operations and oversight of the actions of other professional service providers.
Chief Executive Officer (CEO) – The title of CEO has traditionally been used within the corporate entity structure. Shareholders own the corporation; directors are managers who make only high-level decisions; and Officers are the managers of the daily affairs and operations of the company. While the title of CEO is traditionally reserved to corporations, many business owners self ascribe this title.
President – President generally denotes that an individual is the head of a single line of operations. Some companies have multiple divisions. There may be a president of each division. The president would generally report to the company’s CEO (or, in some cases, the COO). Nonetheless, if is common for businesses with a single line of business to designate an individual as president. This normally means that this individual is in charge of all operations.
Because there is no (or few) legal limitations on the title employed by the sole proprietor, she must consider what she wants to project with her title. If the sole proprietor owns the business but allocates responsibility for overseeing the business operations to another person, this can affect whether she should indicate to the world that she bears responsibility for daily operations. She may wish for third parties to see the business as larger or her role as more important. In such a case, she may choose a title that is perceived as more authoritative, such as President or CEO. This has to be balanced against appearing pompous or grandiose. Such actions can be ill received by potential customers or clients.
LawTrades Knows Business Setup
While the sole proprietorship is generally a very simple business form, there are still numerous attributes and characteristics of the business form that the owner must understand. If you are considering forming a business, don’t do so without adequate information. The legal experts at LawTrades can provide you with the advice and guidance you need to set up your business appropriately.