What is a Sole Proprietorship?

A sole proprietorship is the simplest and most common form of business ownership, and it is characterized by being owned and operated by a single individual. Unlike corporations or limited liability companies, there is no legal distinction between the business and the owner. The business and the owner are the same entity; when taxes are filed, there is no distinction between the business and the individual.

This arrangement means that the individual is personally responsible for all aspects of the business. The owner has complete control over decision-making, from daily operations to long-term planning, and all profits generated flow directly to them without the need to share with partners, shareholders, or other stakeholders.

However, this control comes with significant responsibility. The owner carries full responsibility for any debts, liabilities, or legal obligations incurred by the business. Creditors can pursue personal assets such as savings or property if business debts cannot be repaid, creating a level of personal risk not present in business structures that offer liability protection.

Sole proprietorships also differ from other business entities in their inability to issue stock or divide ownership into equity shares, making them unique compared to other business structures. This type of ownership is often favored for its simplicity, low startup costs, and ease of management, but it comes with the trade-off of unlimited personal liability and limited options for raising capital. A sole proprietorship provides an individual with complete ownership and control, but also places the full financial and legal burden directly on the owner.

Ultimately, a sole proprietorship provides an individual with complete ownership and control but also places the full financial and legal burden directly on the owner. Choosing the right business structure is one of the most important decisions you’ll make as an owner. You don’t have to make it alone. For assistance, contact The Center for Financial, Legal, and Tax Planning, P.C. at (618) 997-3436.