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Sole Proprietorship

The most basic, and the most common, business entity is the sole proprietorship. Simply by conducting business, a single person, known as the owner or sole proprietor, owns and operates the business entity. The sole proprietorship is not a separate legal entity; instead, the owner and business are one in the same. As such, the sole proprietorship provides no limited liability protection for the owner's personal assets. Many people engaged in business are sole proprietors since it is easy to set up with no formal filing requirement to establish the organization.

A sole proprietor may have to file some documents (such as permits, certificates, or licenses) with state agencies. For example, a sole proprietor in the Commonwealth of Massachusetts must file a fictitious name certificate ("DBA") registering the name with the Town Clerk. The sole proprietor may also be responsible for other filings such as sales and use applications and payroll taxes, if he has employees.

Sole proprietorships are sometimes used when a person first starts a small business. Once the business is running, many sole proprietorships change business structure from a sole proprietorship to a corporation or limited liability company (LLC) to better suit the needs of the business and protect the owner.

The owner manages and controls the proprietorship on his/her own; thus, no meetings or voting is required.

The sole proprietor has unlimited liability, is solely responsible for all debts of the business, and the owner's personal assets are available to satisfy any such liabilities.