Sole Proprietorship Definition

Video Transcript

"So what's the definition of a sole proprietorship? A sole proprietorship is really just a business where there is no separation between the owner and the business itself. That means that all the profits that someone might make as a sole proprietor go directly to their personal profits and there is no filter in between. It also means all the liabilities, all the hazards that a sole proprietor might encounter, lawsuits, things like that will also encompass their personal assets. This is why some people will form a corporation, that could be an LLC, that could be an S Corp a C Corp, there is a number of different formations and the reason someone would form a corporation rather than be a sole proprietor is to put the corporation as the business entity then any liabilities or lawsuits things like that that would be encountered would only be able to attach themselves to the assets of the corporation so that means that your personal property, your house, your car, so forth those things would not be subject to the suit that was being had. So many times you'll see people forming LLC's. They'll form partnerships. They'll form all sorts of different variations of corporations really to protect themselves from the liability that might be encountered when they are in the course of doing their business. The other thing though is if you are a corporation you are going to receive income as a corporation and then that will be taxed and then you will also pay yourself a salary as an employee of the corporation so that is something that a sole proprietor doesn't have to worry about. So any income that comes in to a proprietorship goes straight to that individual. It is taxed once a year, a normal income tax rate and then you are satisfied and so that is what a sole proprietorship has as both its advantages and disadvantages with a corporation."