Sole Proprietorship

AAA

DEFINITION of 'Sole Proprietorship'

The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners.

Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary.

Sole proprietorship is also known as "proprietorship".

INVESTOPEDIA EXPLAINS 'Sole Proprietorship'

There is no separate legal entity created by a sole proprietorship, unlike corporations and limited partnerships. Consequently, the sole proprietor is not safe from liabilities incurred by the entity. The debts of the sole proprietorship are also the debts of the owner. However, all profits flow directly to the owner of a sole proprietorship.

The benefit of the sole proprietorship is the tax advantage. The disadvantage of a sole proprietorship is obtaining capital funding, specifically through established channels, such as equity (selling shares) and obtaining bank loans or lines of credit. As a business grows it often transitions to a limited liability company (LLC) or S corporation.

 

To learn about the tax implications of being a sole proprietor, check out Who is required to fill out a Schedule C IRS form?

RELATED TERMS
  1. Buy And Sell Agreement

    An approach used by sole proprietorships, partnerships and closed ...
  2. Double Taxing

    A tax law that causes the same earnings to be subjected to taxation ...
  3. Shell Corporation

    A corporation without active business operations or significant ...
  4. Subchapter S (S Corporation)

    A form of corporation that meets the IRS requirements to be taxed ...
  5. Corporation

    A legal entity that is separate and distinct from its owners. ...
  6. Partnership

    A business organization in which two or more individuals manage ...
RELATED FAQS
  1. What's the difference between a financial plan and a financial forecast?

    Selecting the appropriate business structure for a new company can present challenges to an entrepreneur. Considerations ... Read Full Answer >>
  2. Which factors drive the marginal propensity to consume?

    A limited liability company (LLC) is not a separate entity from its business owners but is instead considered a pass-through ... Read Full Answer >>
  3. How can I merge technical analysis and fundamental analysis with quantitative analysis ...

    It is important for a sole proprietor with no employees to register as a limited liability company because an LLC provides ... Read Full Answer >>
  4. Do companies have to pay back their paid-up capital?

    One of the most important selections a business owner must make is determining which legal business structure is the most ... Read Full Answer >>
  5. What advantages do corporations have over privately held companies?

    The chief advantage that most publicly traded corporations enjoy – and the primary reason why private companies decide to ... Read Full Answer >>
  6. What are the major types of business in the private-sector and how do they differ ...

    A broad variety of different businesses, company structures and industries exist within the private sector in the United ... Read Full Answer >>
  7. What are the income statement presentation formats and what industries use them?

    In accounting, there are three major financial statements: the balance sheet, income statement and statement of cash flow. ... Read Full Answer >>
  8. What's the difference between publicly- and privately-held companies?

    Privately-held companies are - no surprise here - privately held. This means that, in most cases, the company is owned by ... Read Full Answer >>
Related Articles
  1. Entrepreneurship

    Don't Get Sued: 5 Tips To Protect Your Small Business

    Find out what you can do to limit risk and keep your business running smoothly.
  2. Retirement

    Holding Titles On Real Property

    Find out how best to claim and convey ownership on your assets.
  3. Investing Basics

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  4. Fundamental Analysis

    Looking For Profit In Privately-Held Companies

    Private companies offer unique opportunities for those with the knowledge and resources to take advantage.
  5. Entrepreneurship

    Can You Handle A Home-Based Business?

    Find out if you have the traits to be a top entrepreneur.
  6. Entrepreneurship

    Start Your Own Small Business

    Quit your job, be your own boss and earn a paycheck. Find out what to do to make it happen.
  7. Entrepreneurship

    Should You Incorporate Your Business?

    Find out how becoming a corporation can protect and further your finances.
  8. Entrepreneurship

    Starting A Small Business

    Starting a small business can be a daunting task. This tutorial will break the process down into easy steps.
  9. Trading Strategies

    Benefits Abound For Active Traders Who Incorporate

    Trading through a separate business structure allows active traders access to all of the tax mitigation and asset protection strategies available.
  10. Entrepreneurship

    401(k) Plans For The Small Business Owner

    If you own a business, this may be the plan for you! Find out about its benefits and eligibility requirements.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center