Sole Proprietorship

Also found in: Dictionary, Thesaurus, Financial, Acronyms, Wikipedia.

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 ?
The same is true for sole proprietorships, but they don't have the benefit of succession.
'I cannot say whether even in Pakistan laws and requirements for fillings of annual returns and tax returns are different for companies, partnership concerns and sole proprietorships,' he replied to Haris' question.
For Tax Year 2012, approximately 4.7 million taxpayers filed nonfarm sole proprietorship returns (Schedule C-EZ), marking a 2.1-percent increase from the number filed for 2011 (Figure F).
Kreft and Mafi-Kreft (2007) use a Granger causality method to test if economic freedom causes increases entrepreneurship (as measured by sole proprietorship rates and patent activity); they answer in the affirmative.
The owner of the Sole Proprietorship Company is entitled to dispose of his parts in the capital by any means, including pledging the parts.
Like a sole proprietorship, no official paperwork is required to form a partnership.
S corporations are taxed like a sole proprietorship or partnership allowing shareholders to record profits and losses on their personal tax returns.
A limited liability company (see Chapter 15) with a single owner may choose to be taxed as either a sole proprietorship or as a C Corporation (see Chapter 13).
Among the entities that could be chosen are a sole proprietorship (for a single owner), partnership (either general or limited), or a corporation.
A sole proprietorship can be formed by finding a location and opening the door for business.
Subchapter "S" corporation: This is a special section of the IRS code and permits a corporation to be taxed as a partnership or sole proprietorship. Businesses must meet certain requirements and should only be formed with the assistance of an attorney.
See how to advise clients who want to buy or sell the assets or stock of a corporate business, the assets or interest of a partnership, or the assets or business of a sole proprietorship. This edition provides details on tax changes, including amortization of goodwill and other intangibles, the election for small business stock and the capitalization of acquisition costs.