A sole proprietorship is an unincorporated business that has one owner who pays the taxes on the profits of that business. Sole proprietorships require very little paperwork beyond such things as business name registrations and filing for sales tax and occupancy permits.Because of its ease of use, a sole proprietorship is popular for independent contractors, small business owners and those individuals who run a part-time or side business.  If the sole proprietorship has employees, the owner can usually obtain a federal Employer Identification Number. Since there is no separate legal entity under which the business is operated, the owner of the business is personally liable for all business debts, but also receives all the profits. One disadvantage of a sole proprietorship is the difficulty of borrowing money or raising capital. In addition, most sole proprietorships are hard to sell and thus usually don’t survive the owner’s death or retirement. If a sole proprietorship grows and proves to be profitable, the owner usually converts the business to a limited liability structure such as an LLC or a corporation.  For tax return reporting purposes, most sole proprietorships are reported on Schedule C of the Individual Income Tax Return Form 1040. Schedule C is, essentially, a profit-and-loss statement for the sole proprietorship.  The owner pays tax on the net profits calculated on the Schedule C. A tax liability for a sole proprietorship is that the owner is subject to self-employment taxes.