Sole Proprietorship
An unincorporated business owned and operated by a single individual, where the owner and the business are legally indistinguishable for tax and liability purposes.
What Is a Sole Proprietorship?
A sole proprietorship is the simplest and most common business structure in the United States, requiring no formal state filing to create. The owner is the business, meaning all profits, losses, debts, and legal obligations belong personally to the proprietor. It is the default classification for any single-owner business that has not elected another structure.
Advantages
- No state filing required to form (though local licenses may apply) - Complete control over business decisions - All profits belong to the owner - Simple tax reporting on Schedule C of the owner's Form 1040 - Minimal ongoing compliance and recordkeeping requirements
Significant Disadvantages
Unlimited personal liability is the central risk. The owner's personal assets — home, savings, investments — can be reached by business creditors and tort claimants. Sole proprietors pay self-employment tax (15.3 percent for Social Security and Medicare) on net earnings in addition to income tax. Raising outside capital is difficult because there is no stock to issue. Most attorneys recommend converting to an LLC once the business has revenue, employees, or significant liability exposure. A fictitious business name (DBA) filing may be required when operating under a name different from the owner's legal name.