Sole Proprietorship Facts

Each business owner must choose an appropriate structure for the business. A sole proprietorship is the least complicated and least expensive business structure to set up, but lacks some of the protections offered by other business types. (Reference 1)

Definition

A sole proprietorship is a business that is owned and operated by one individual. Unlike a limited liability company (LLC) or corporation, a sole proprietorship is not required to register with the state.

Liability

As a sole proprietor, you are personally responsible for the business. If your business cannot pay its creditors, you may be required to use your own assets, including your savings and your home, to pay the debts.

Taxes

You report the income and losses of a sole proprietorship on your personal income tax return. You must also pay self-employment tax, which covers social security and Medicare.

Paperwork

Depending on your business and your location, you may need a federal employer identification number, a local business license, zoning permits or registration of your business name (see Resources).

Warning

If you and your spouse are building the business together, you will be considered co-owners and may not organize as a sole proprietorship.

References

• Find Law: Business Structures: Which One is Best for Your Business
• Find Law: How to Set Up a Sole Proprietorship
• Find Law: Your Sole Proprietorship and Your Spouse

Resources

• Find Law: Checklist: Starting a Sole Proprietorship"