Example of a Sole Proprietorship Business

Sole proprietorship is a business structure for individuals who work for themselves, often on a freelance basis. Although it does not require formal incorporation and you do not have a board of directors, a sole proprietorship lacks the legal protection of an incorporated business.

Function

Becoming a sole proprietor is the easiest way to establish a one-person small business.

Types

Freelance writers, copy editors, photographers and craftspeople might choose to run their businesses as a sole proprietorship.

Features

A sole proprietor status is desirable for two primary reasons. First, there are no required start-up costs, although business licenses or town permits might be advisable. Second, there are no additional tax forms, as sole proprietors include business income on their individual tax return (Schedule C of Form 1040). As self-employed individuals, sole proprietors are subject to the self-employment tax.

Warning

In the event of a lawsuit, the sole proprietor is held liable, meaning the individual's personal assets could be at risk.

Considerations

People considering a sole proprietorship should consider the amount of risk inherent to their business. Those with higher risk might consider a more formal structure such as an LLC, which provides a higher level of protection but still allows for one-person companies.

References

• Internal Revenue Service: sole propietorships

Resources

• Nolo: sole proprietorships