Sole Proprietorship

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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.


S Corporation.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.

sole proprietorship

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

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
References in periodicals archive ?
While I cannot predict what will happen the last nine weeks of session, I do know I will be working to protect the freedom and independence our sole proprietors rely on to make a living and do what is best for their families.
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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." However, many of those sole proprietors have one or two employees, and those employees may not he CPAs, leaving the owner without a potential successor within the firm to develop.
The sole proprietor is liable for all business debts and expenses.
Most sole proprietors do not realize that when they die their business dies with them.
No one is the sole proprietor of progressive virtue; no one has the right to impose rules of conduct upon the rest of us.
The electrician is a sole proprietor who operates under a trade name.
You are sole proprietor, partner or shareholder of a closed corporation and you ask, "What is a buy-sell agreement and why do I need one?"
Dubai: Dubai Department of Economic Development (DED) has started the registration of sole proprietor companies for Emiratis as a legal form of business structures and individual establishments, the organisation said in a statement on Saturday.