A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.
The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s.
This means that the owner has no less liability than if they were acting as an individual instead of as a business. It is a “sole” proprietorship in contrast with partnerships.
A sole proprietor may use a trade name or business name other than his or her legal name.
In many jurisdictions there are rules to enable the true owner of a business name to be ascertained. In the United States there is generally a requirement to file a doing business as statement with the local authorities. In the United Kingdom the proprietor’s name must be displayed on business stationery, in business emails and at business premises, and there are other requirements.
Advantages and disadvantage of sole proprietorship
Some factors you need to consider when choosing the best legal structure for your business:
Cost to run the business
The cost of setting up legal structure is an important consideration for startup entrepreneurs. You can form a sole proprietorship quickly and very inexpensively. If you wish to start a corporation or even a limited liability company, it is not uncommon to use a lawyer to help you set up the business or an incorporation service – both of which costs money.
Ease of Operation of business
How quickly you can set up the business is an important factor to consider when choosing your business structure. For a sole proprietorship, some counties simply require you to apply for business registration, which you can then take to the bank to open a business checking account. Other legal formats such as a corporation or LLC require more documentation and paperwork that can take time to draw up.