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Basic Information About Sole Proprietorships

A sole proprietorship is a business which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation do not apply. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. In some jurisdictions a business owned by a husband and wife jointly can still be considered a sole proprietorship, in others it would be considered a type of partnership. 

A sole proprietorship essentially means a person does business in his or her own name and there is only one owner. Since the business is really just an extension of that person and not a new entity (like a corporation) any business debts are also personal debts. If the business were to get a judgment filed against it, it would be a problem for the owner. As a sole proprietorship is not a corporation, it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporation would have to.

A business organized as a sole proprietorship will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company. Hiring employees may also be difficult. This form of business will have unlimited liability, therefore, if the business is sued, it is the proprietor's problem.

Most sole proprietors will register a trade name or "Doing Business As" with their jurisdiction. This allows the proprietor to do business with a name other than their legal name and also allows them to open a business account with banking institutions. However, the owner remains personally liable for all business debts.

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