Sole Proprietorship

(redirected from Sole proprietor)
Also found in: Dictionary, Thesaurus, Financial, Encyclopedia.

Sole Proprietorship

A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation.

A person who does business for himself is engaged in the operation of a sole proprietorship. Anyone who does business without formally creating a business organization is a sole proprietor. Many small businesses operate as sole proprietorships. Professionals, consultants, and other service businesses that require minimum amounts of capital often operate this way.

A sole proprietorship is not a separate legal entity, like a partnership or a corporation. No legal formalities are necessary to create a sole proprietorship, other than appropriate licensing to conduct business and registration of a business name if it differs from that of the sole proprietor. Because a sole proprietorship is not a separate legal entity, it is not itself a taxable entity. The sole proprietor must report income and expenses from the business on Schedule C of her or his personal federal income tax return.

A major concern for persons organizing a business enterprise is limiting the extent to which their personal assets, unrelated to the business itself, are subject to claims of business creditors. A sole proprietorship gives the least protection because the personal liability of the sole proprietor is generally unlimited. Both the business assets and the personal assets of the sole proprietor are subject to claims of the sole proprietorship's creditors. In addition, existing liabilities of the sole proprietor will not be extinguished upon the dissolution or sale of the sole proprietorship.

Unlike the managers of a corporation or a partnership, a sole proprietor has total flexibility in managing and controlling the business. The organizational expenses and level of formality in a sole proprietorship are minimal as compared with those of other business organizations. However, because a sole proprietorship is not a separate legal entity, it terminates when the sole proprietor becomes disabled, retires, or dies. As a result, a sole proprietorship lacks business continuity and does not have a perpetual existence as does a corporation.

For working capital, a sole proprietorship is generally limited to the individual funds of the sole proprietor, along with any loans from outsiders willing to provide extra capital. During her lifetime, a sole proprietor can sell or give away any asset because the business is not legally separate from the sole proprietor. At the death of the sole proprietor, the business is usually dissolved. The proprietor's estate, however, can sell the assets or continue the business.

Cross-references

S Corporation.

sole proprietorship

n. a business owned by one person, as distinguished from a partnership or corporation.

References in periodicals archive ?
Two years ago, I surprisingly discovered that the suspect had forged the trade license when he mentioned on the photocopy of the trade license [issued from the Department of Economic Development in Dubai] that the company became a sole proprietor company - it was not a limited company anymore.
Single-owner firms also dominate this group of larger firms, though they are larger and have survived longer on average than the group referred to as sole proprietors.
Among sole proprietors, most owners say they don't have a PCA in place to cover unforeseen events such as death or disability When sole proprietors with employees were asked what they were doing to develop future leaders, 52% answered "Nothing.
A sole proprietor cannot admit another owner without legally ending the sole proprietorship and forming a new business such as a partnership.
Those who believe their income is too small for the IRS to care about may be surprised to learn that in 2003, 3% of sole proprietors with gross receipts below $25,000 were examined.
The notice stated that sole proprietors in the construction industry who had elected to be exempt from workers' comp laws would lose their exemption unless they incorporate and file an application for re-issuance of their exemption.
Many sole proprietors of businesses with occasional employees, or no employees, are sometimes confused with laborers.
In the case of the sole proprietor, an agreement may not be feasible as it requires not only a seller but also a purchaser.
NEW YORK -- In their ongoing effort to cover the working uninsured, HealthPass and UnitedHealthcare, two of New York City's leading providers of health insurance tailored for small business, are joining forces for the first time to offer affordable, high-quality health insurance products to sole proprietors under the Oxford product brand.
Bu Shahab urged Emirati investors who are interested in starting business and adopt the legal form of sole proprietor company to complete all procedures regarding the issuance of the licence.
The current system does not mandate withholding for noncompliant sole proprietor payees.
In Chief Counsel Advice (CCA) 200524001, the IRS held that a self-employed individual who is a sole proprietor and purchases health insurance in his or her own name may treat it as purchased in the name of the sole proprietor business.