Sole proprietorship

A Sole proprietorship is a business which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation do not apply. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. In some jurisdictions a business owned by a husband and wife jointly can still be considered a sole proprietorship, in others it would be considered a type of partnership.

Related Topics:
Business - Liability - Corporation - Partnership

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A sole proprietorship essentially means a person does business in their own name and there is only one owner. Since the business is really just an extension of that person and not a new entity (like a corporation) any business debts are also personal debts. If the business were to get a judgement filed against it, it would be a problem for the owner. As a sole proprietorship is not a corporation, it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporation would have to.

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A business organized as a sole proprietorship will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company. Hiring employees may also be difficult. This form of business will have unlimited liability, therefore, if the business is sued, it is the proprietor's problem.

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Most sole proprietors will register a trade name or "Doing Business As" with their jurisdiction. This allows the proprietor to do business with a name other than their legal name and also allows them to open a business account with banking institutions. However, the owner remains personally liable for all business debts.

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See also:

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Nolo's Site on Sole Proprietorships

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