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.

sole proprietorship

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

References in periodicals archive ?
The Ministry of Commerce and Industry has stated that the number of sole proprietorships and commercial companies that have renewed or cancelled their commercial registrations (CRs) through Invest Easy portal stood at 3,062 since starting submitting applications at the beginning of December.
The Ministry urged owners of sole proprietorships and commercial companies to cancel or renew their expired CRs as till March 31st, 2018 to ensure accuracy of their establishments data.
Veenstra, Zuurveen, and Stol present readers with the results of a study investigating the incidence and depth of cybercrime victimization among small and medium-sized enterprises (SMEs) and sole proprietorships in The Netherlands between 2013 and 2015.
9% additional Medicare tax simultaneously apply to sole proprietorships.
Bids Submitted By Owner Or Sole Proprietorships Must Include Certification That He Or She Owns The Entity For Which The Bid Is Signed.
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In October 2010, the number of new sole proprietorships established went up 19.
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A sole proprietorship is the simplest form of business entity--simply an individual taxpayer operating a business--and, for that reason, many small businesses start out as sole proprietorships.
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New business owners (and most business owners) operate as sole proprietorships and need to understand the three basic IRS forms for sole proprietor tax reporting and payment.
businesses, and 87% of all women-owned businesses, have no employees," says Hadary, affirming that many people simply claim themselves as sole proprietorships to the Internal Revenue Service and the U.