Who should, and shouldn’t, be a sole proprietorship

A sole proprietorship can be the right choice for some entrepreneurs but not for others, depending on their goals and business type. This structure is often ideal for freelancers, independent contractors, and small local service providers such as tutors, personal trainers, or coaches. These businesses benefit from the simplicity of setup, minimal paperwork, and the ability for the owner to retain full control over operations.

Hobbyists and side hustlers also find sole proprietorships appealing, as they allow individuals to test business ideas with little upfront cost or formal requirements. Entrepreneurs with businesses that carry little liability exposure, such as digital product creators or online consultants, often favor this structure because it enables them to report income directly on personal tax returns while keeping all profits. For frugal business owners, sole proprietorships are attractive since they avoid incorporation fees, annual state filings, and the added expense of corporate-level accounting.

                However, there are significant downsides that make sole proprietorships unsuitable for many entrepreneurs. Those working in high-risk industries like construction, food service, healthcare, or transportation may face lawsuits or debts that could put their personal assets at risk, since the owner is fully liable for business obligations.

Growth-focused entrepreneurs planning to scale quickly or seek outside investment typically avoid sole proprietorships because they cannot issue stock, share equity, or easily raise significant funding. Capital-intensive businesses, such as manufacturing or technology startups, also face challenges under this model because lenders and investors often view sole proprietorships as less stable. Likewise, partnerships are not possible within this structure, as ownership is limited to one individual.

Not sure if a sole proprietorship fits your business plans? The Center for Financial, Legal, and Tax Planning, P.C., can help you evaluate your options. Call us at (618) 997-3436.