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.

Cross-references

S Corporation.

sole proprietorship

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

References in periodicals archive ?
I was absolutely amazed when IP approached me," said Ms Smith, who has been operating as a sole trader in Birmingham since 2001.
The ACCC is committed to improving product safety and will not hesitate to take enforcement action when retailers put the safety of infants and children at risk, regardless of whether retailers are large corporations or sole traders, ACCC Deputy Chair Delia Rickard said.
The Government's controversial new Entrepreneur's Relief regime will cause bitter frustration for sole traders and business partners according to a Midland tax expert.
The earliest access date for sole traders is 60 unless it's an ill health early retirement claim.
Sole traders or partners selling their business or their interest in a business
If on the other hand, you want a business which provides an income, or satisfies a desire or an ambition or fulfills a sense of social responsibility, and world domination is not the most important thing on your mind, immediate incorporation may not be necessary, but beware of the liability perils of sole trader status and partnerships.
Whether or not to incorporate is a very big decision for a sole trader and even when they have done it it should still be reviewed regularly.
Sole trader Adrian Stanbridge says taking on an apprentice plumber is the only way to ensure your staff are of the best quality.
Stephen Reynolds, the council's welfare rights officer, said: "As a sole trader, Ms Gibson-Barkess would have to file for personal bankruptcy to put the company into liquidation, and this isn't the case.
The site at GroveHill Park, Gorslas, Llanelli, is being developed by Black Lion Developments, run by Julian Jenkins, who has operated as a sole trader since 1990.
If on the other hand, you want a business which provides an income, or satisfies a desire or an ambition or fulfils a sense of social responsibility, and world domination is not the most important thing on your mind, immediate incorporation may not be necessary, but beware of the liability perils of sole trader status and partnerships.
Outlook Unlimited has gone from a sole trader to a business of five after transferring to offices in Malvern House.