A sole proprietorship is a business entity formed and owned by a single individual. Because of the simple nature of this kind of business, the individual and business are considered legally one and the same. Sole proprietorships can be operated under the name of the individual or can feature an ‘Assumed Business Name’ (sometimes called DBA or ficticious name) allowing the registrant to operate under a name other than their own.
Sole proprietors/owners of sole proprietorships are 100% liable individually for all debts and legal actions against their business. Many sole proprietors choose to carry larger General Liability insurance limits to offset this liability.
Sole proprietors report business income on their individual income tax returns on their Schedule C. Thus, all tax liability is at the individual level.
- Can still use an ‘Assumed Business Name’, if desired
- Don’t always have to be registered if the individual is using their own name
- Less expensive to form and maintain than Corporations or LLC’s
- No required annual meetings or complex operating bylaws
- Simple way to form a single party business
- Can be perceived as less professional or trustworthy due to informal structure
- Owners must pay ‘self-employment tax’ on all income
- Personal liability passes through to owner, even if that liability is in excess of their individual investment in the company
- Lack of detailed State statutes and guidelines make it difficult to obtain investment capital
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