What is a Sole Proprietor?

Sole proprietor

 

 

A sole proprietor is an entity that is not incorporated (as a C corp, S corp, or other corporate structure). As the name implies, sole proprietors have just one owner, who pays personal income tax on any profits earned from the entity. Sole proprietors are not as highly regulated as other structures, and many do business under their own name rather than creating a separate business name. Because of their lack of regulation, sole proprietor businesses are the easiest to create, often being used by independent contractors and consultants. They’re also easy to dissolve, and in some cases are transformed into an LLC or corporate structure when the organization grows. There is no separately legal entity with a sole proprietor, and the owner is therefore liable for any profits, debts, and liabilities of the business. While they are a simple place to start for many organizations, sole proprietors don’t provide protection from the business’s liability and sometimes lack the credibility of an incorporated business. Therefore, it’s a good idea to compare the benefits of a sole proprietor to those of a C corp, S corp, LLC, and non-profit – and consult a good accountant and lawyer before choosing even this simple business structure.

 

NEXTSTEPS | 1.16.21

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