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Sole Proprietorship

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Updated on Tuesday, April 25, 2017



The sole proprietorship is the most common form of business structure for small companies. It is viewed as being one and the same as its owner. This characteristic has the advantage of simplicity but also has the disadvantage of personal liability.

Taxation

A sole proprietorship has pass-through taxation. The business itself does not file a tax return; rather, the income passes through and is reported on the owner's personal tax return.

Liability

The owner of a sole proprietorship has unlimited personal liability. However, with insurance for tort risk and contractual limitations for contract risk, the sole proprietor can insure against most risks and operate with near the same level of comfort as the owners of a corporation.

Continuity of existence

A sole proprietorship exists only as long as the owner is alive or until the owner decides to close the business.

Risk and Control

The control of a sole proprietorship belongs entirely to the owner, who also assumes the full risk of the business.

Transferability

Transferring one's interest in a sole proprietorship is very easy - one simply prepares an asset purchase agreement and sells the assets. The assets of a sole proprietorship are transferred with the estate of the owner upon death. To die testate means that there is a valid will; intestate means that there is no valid will and the intestate succession laws will determine the allocation of assets among heirs. These laws are logical, but it is better to use a will to specify one's wishes for the transfer of sole proprietor assets.

Expense and formality

The sole proprietorship is the simplest way of doing business. The costs of formation are very low and there is very little formality required. If the name of the business is different from the name of the owner, the sole proprietorship must be registered with the state. If the owner's name is used, it will be in the form of firstname lastname or simply lastname.



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