A sole proprietorship, also known as the 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 proprietors. This means that the owner has no less liability than if he were acting as an individual instead of 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.
Operating as a sole proprietor is certainly the easiest and cheapest form of doing business. You basically open the doors and go. The temptation to operate this way is great and many succumb to it. However, the shortcomings of this form of business are great. There is absolutely no protection between you and your business and there are no tax benefits. Moreover, there are no particular record-keeping requirements, leading to sloppy business practices, poor decision making, and potential failure. At the very least you become a sitting duck for an IRS audit and lawsuits. Planning at the beginning can save you money on an ongoing basis and protect the assets that you have worked so hard to accumulate.