What is a sole proprietorship?

A sole proprietorship is defined as a business owned and operated by a single individual, and it is characterized by the fact that the owner is personally liable for all losses and liabilities incurred by the business. This means that there is no legal distinction between the owner and the business itself; the sole proprietor is responsible for all debts and obligations the business incurs. This structure is simple to establish and offers complete control to the owner, making it a popular choice for many small business operators.

Other business structures, such as limited liability companies or corporations, provide a way to limit the personal liability of owners, protecting their personal assets from business creditors. In contrast, a sole proprietorship does not offer such protections, which is a significant aspect of its nature. Partnerships involve two or more individuals sharing ownership and responsibilities, while corporations are distinct legal entities owned by shareholders, further separating personal liability from business liabilities.