Sole Proprietorships

In a sole proprietorship, an individual conducts a business without any separate formal entity being created. A fictitious, or "doing business as" may be registered. It is easy and inexpensive to conduct business in this form, and that is why many small and start-up businesses are conducted as sole proprietorships.

Management:    The individual is the sole owner of the business and has control over how the business is run.

Liability: The sole proprietor is liable for the debts and other obligations of the business because the business is not separate from the individual. Proper insurance coverages are needed to protect the individual from non-contractual claims.

Taxation: The sole proprietor reports all items of income, deduction, gain, loss, and credit on the proprietor's Form 1040, Schedule C. The sole proprietor is liable for self-employment taxes under FICA and FUTA.

Continuity: A sole proprietorship exists as long as the individual exists and continues to run the business. The death of the sole proprietor automatically terminates the existence of that proprietorship. The assets of the business may be passed on or sold to someone else, who can continue the business.

Transferability: A sole proprietor may easily transfer his or her interest in the business in his or her own sole discretion, by selling or giving the assets of the business to someone else. On the other hand, by definition the sole proprietor cannot sell part of the business and remain a sole proprietor.