What Is a Sole Proprietorship?

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A sole proprietorship is a business structure commonly constructed for small business owners who want to be named the solitary owner of their businesses. Of all potential company structures, sole proprietorships are the least complex. As the owner of a sole proprietorship, you would both be held accountable for the business’s debts and liabilities while remaining entitled to all of the business’s profits.

Sole Proprietorships by Default

It is worth noting that a sole proprietorship is the default business structure recognized by the government when an individual engages in business-related activity alone. Meaning that if an individual begins selling products or services as a sole proprietorship business owner, that business will be treated as a sole proprietorship even if no specific action has been taken to formalize that company structure. The very act of engaging in business as an individual in this way means that the affected individual has essentially constructed a sole proprietorship by default. This is prime example of a sole proprietorship formation of business structure.

This is an important legal reality to grasp, because a sole proprietorship has a unique liability structure. Even when sole proprietorships are created by default, no liability shield exists between the business owner and the company. This means that a business owner may be held personally liable for business-related wrongdoing. As a result, it is important not to allow this structure to be created by default (or to choose this business structure intentionally) unless you are willing to assume the risks associated with being a sole proprietor of a company. It is also important to understand that operating as a sole proprietorship without proper licenses and permits may leave you vulnerable to penalties and liabilities. In addition, you are responsible for ensuring that your business pays appropriate taxes. The liability structure is a serious consideration of a sole proprietorship. An experienced business attorney can help to ensure that your business is operating legally.

Who Chooses a Sole Proprietorship Structure?

There are many kinds of businesses that lend themselves well to a sole proprietorship formation of a business structure. Individuals who want to be able to exercise complete control over their business’s activities are often attracted to this option. Some examples of sole proprietorships include:

  • Freelance Writers
  • Housekeepers
  • Bookkeepers
  • Direct Sellers
  • Chefs and Bakers
  • In-Home Healthcare Providers
  • Nannies
  • Daycare Providers
  • Graphic Designers
  • Artists
  • Landscapers
  • Accountants
  • Caterers
  • Tutors
  • Craftspeople

These are just a few examples of the kinds of business owners who tend to utilize the sole proprietorship structure. It is important to note that not every business owner in this category uses this business structure. Some choose to form partnerships, limited liability companies or even corporations.

Answering Additional Questions

If you have questions about a sole proprietorship, please consider reaching out to the team at LawTrades. Our approach is affordable and efficient. In addition, we have the benefit of extensive experience in navigating the formation of business structures. For example, we have aided more than 5,000 startup companies in matters including incorporation, financing and compliance. If you believe that forming a sole proprietorship may be the best choice for your business or you are interested in exploring other structural options, please don’t hesitate to contact us today.