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Definition

sole proprietorship

A sole proprietorship is an unincorporated business owned by a single individual or a couple who files a single tax return. 

Like other types of business structures, such as C corporations and limited liability companies (LLC), the sole proprietorship is a category created for use within the legal and taxation systems and often differentiated by tax requirements.

A sole proprietorship may consist of only the owner or may have employees. There is no legal distinction between the business and the owner, who is entitled to all business profits and responsible for all business debts. Losses and liabilities are usually borne by the owner and business taxes are filed on the owner’s tax return. However, a sole proprietorship can also register as a limited liability company, which protects the owner’s private assets beyond a fixed sum, which is generally equal to their investment in the business.

In most cases, the business is identified by the owner’s name. If the owner wishes to operate with a separate business name, that name must be unique within the state where the business is located and will probably have to be registered. 

Freelancers and many other self-employed people are, in legal terms, operating sole proprietorships. As the numbers of freelancers and entrepreneurs have increased in recent years, so has the number of sole proprietorships.

See also: S corporation, cooperative, partnership

This was last updated in December 2015

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