A sole proprietorship is a business operated by 1 person in his or her name or in a fictitious name, i.e. made up name, without filing any paperwork with any government body. In essence, a sole proprietorship is the default structure for any individual who simply begins working one day and does nothing else. It’s the easiest business structure to choose because there are hardly any legal requirements to set it up.
However, there are many drawbacks in operating as a sole proprietorship. Perhaps the biggest drawback is that sole proprietors are personally liable for all the acts and or omissions of the business. In general, it is best to avoid personal liability and so the vast majority of individuals are better off in selecting a different business structure than a sole proprietorship.
- Taxes – taxed at your personal income rate level
- Liability – personal liability
Next, we’ll go over the basics of the partnership business structure.