2 Common Ways to Start Your Legal Cleaning Business

Many self-employed house cleaners start with a simple legal business structure.

The two most common business forms are the sole proprietorship and general partnerships.

Both are considered “informal” business structures because they don’t involve setting up formal paperwork such as articles of incorporation or partnership agreements with state and federal governments. They are both very easy to set up and maintain.

Yet, like everything else in life, “easy” comes with both benefits and downsides.

Pros and Cons Of Common Legal Business Forms

Sole Proprietorships and General Partnerships are two popular ways to get started with a residential house cleaning business.

Both legal forms have pros and cons that you need to be aware of when you start your business.

Sole Proprietorship

The sole proprietorship is the most common legal business structure.

A sole proprietorship is a business controlled and owned by one individual and is limited to the life of its owner, so when the owner dies or dissolves the business, the business ends.

The owner receives the all the profits and takes all the losses from the business. The owner alone is responsible for the debts and obligations of the business.

Income and expenses of the business are reported on the sole proprietor’s individual income tax return and profits are taxed at the sole proprietor’s individual income tax rate.

In Arizona, Colorado, Oklahoma and Washington, married couples can form sole proprietorships. In other states married couples can only form general partnerships.

Sole Proprietorship Pros

Sole Proprietor Cons

Sole Proprietor Tax Notes

Income from the business is taxed as personal income by the IRS (use Form 1040, Schedule C).

Sole proprietors must pay self-employment tax each quarter to the IRS (and in many states). Use Form 1040, Schedule SE.

A sole proprietor who does not expect to have employees is not required to apply for an Employer’s Identification Number (EIN) from the IRS. The EIN is also known as a Federal Employer’s Identification Number (FEIN).

However, it is a good idea to get a EIN for other business purposes, like opening bank accounts, loan applications and state and county registrations.

General Partnerships

A general partnership is another common legal business form of self-employment, similar to a sole proprietorship.

However, general partnerships include two or more people (for example, a married couple), who operate the business together.

In general partnerships, all partners share equally in the right and responsibility to manage the business.

All partners are responsible for all debts and obligations of the business.

How profits and losses are handled, who manages what areas of the business and other issues about the partnership are usually defined in a written partnership agreement.

It is extremely important for people starting a general partnership to draw up a written agreement before starting the business. Hash out as many details about how the business will be run as possible.

In a partnership agreement, no detail is too small (like what happens if a partner is frequently late for work) or too scary (like what happens if a partner is injured in a car accident and can’t work).

Making a written plan is the first step in setting up solid lines of communication that will lead to the partnership’s success. This is especially true if the partners are married or are related to one another.

General Partnership Pros

General Partnership Cons

General Partnership Tax Notes

For federal income tax purposes, a General Partnership is not a separate from the partners themselves.

Each individual partner is subject to the same reporting requirements and tax rates as the Sole Proprietor.

General Partnerships are required to apply for an Employer’s Identification Number (EIN), whether they have employees or not.

General Partners must pay individual self-employment tax each quarter to the IRS and in some states.

The General Partnership files a yearly Federal return using IRS Form 1065. Many states have similar yearly partnership forms.

Limiting Liability

If you plan to have employees someday, you can start as a sole proprietor or form a partnership with someone.

You can then change the business form to an LLC (Limited Liability Company) or Corporation before you hire.

The greatest drawback of both sole proprietorship and general partnership is they leave you open to full legal and financial liability.

For example, if something goes wrong in your business such as major damage to your customers property (like bleach spills on carpet) or being accused of theft.

How Business Insurance Helps

As a self-employed house cleaner, an umbrella liability insurance policy that covers you up to a million dollars plus a janitorial/cleaning bond will help to reduce your liability and help you sleep at night.

Related: A Self-Employed House Cleaners Deep Guide to Insurance

How you choose to set up your business is up to you. Remember the benefits and downsides of “easy”. Choose wisely.

How have you set up your cleaning business?  Share your experience in the comments below⬇︎.