What is a Sole Proprietorship?
A sole proprietorship is an individual carrying a business activity without incorporating and without a partner. The business and the owner are one in the same. There is no legal distinction between them. The debts and obligations of the business are the debts and obligations of the owner. What is owned by the business is owned by the owner. If the business is sued, it is really the owner who is being sued. If judgments are awarded against the business, they are awarded against the owner. The life of the business is tied to the life of the owner. If the owner dies, the business dies. Approximately 70% of all businesses in the United States are operated as sole proprietorships. They are easy and inexpensive to set up. For more information on this topic, see your local SBDC.
A sole proprietorship is an unincorporated business owned by one person (hence, the term sole). The owner of a sole proprietorship is known as a sole proprietor. If you conduct your business through a corporation, your business will not be a sole proprietorship. If you share ownership of your business with someone else, including your spouse, your business will not be a sole proprietorship. The most important feature of a sole proprietorship is that the law makes no distinction between you, the sole proprietor, and your business. Virtually all the legal and tax consequences associated with sole proprietorships flow from this essential element. As a sole proprietor, you can conduct business under your own name or under a trade name. For example, let’s say I am a plumber. I can conduct business under my own name, Jim Poznak, Plumber. Or, I can conduct business under a trade name, such as EZ Flush.
A sole proprietorship is an unincorporated business owned by one person (hence, the term sole). The owner of a sole proprietorship is known as a sole proprietor. If you conduct your business through a corporation, your business will not be a sole proprietorship. If you share ownership of your business with someone else, including your spouse, your business will not be a sole proprietorship. The most important feature of a sole proprietorship is that the law makes no distinction between you, the sole proprietor, and your business. Virtually all the legal and tax consequences associated with sole proprietorships flow from this essential element. As a sole proprietor, you can conduct business under your own name or under a trade name. Whether you conduct business under your own name or under a trade name, if you are the sole owner of an unincorporated business, your business will be a sole proprietorship, and you will be the sole proprietor.
A sole proprietorship is one of the four general ways you can choose to organize your business (the other three being as a partnership, as a corporation or as a limited liability company). Unlike the other three business forms, sole proprietorships are not a separate legal entity – they are indivisible from their owner and, as far as the law is concerned, the business and its owner are one in the same. As a result, sole proprietorships are the easiest and cheapest type of business to setup and operate. However, this also means that the owner is fully responsible for the company and there is no form of limited liability – so if the business gets sued or defaults on some debt, the owner is always on the hook for that liability. If you are setting up a sole proprietorship, you must be the only owner (except that your spouse can be a co-owner in the company) – if your business is going to have more then one owner, your cheapest and easiest option is generally to start a partnership.
