Sole Proprietorship

What is it?
A sole proprietorship is the simplest form of conducting business. The individual “proprietor” is the company for legal and tax purposes, and the proprietor is liable for the debts and obligations of the business.

How is it formed?
Most state business statutes do not require the proprietor to file a formation statement for a sole proprietorship, but county and/or local government ordinances may require the proprietor to register the business name and to obtain a local business license.

How is it taxed?
For income tax purposes, the proprietor includes the business’s revenue and expenses on his or her individual income tax return (generally Schedule C of Form 1040). In addition, the proprietor may be required to register with the state department of revenue for the collection and remittance of sales and use taxes, payroll taxes, or any other applicable state or local taxes.

Who uses it?
Many small businesses are started as a sole proprietorship by their owners and are later converted into another entity to protect the owner from being personally liable to future business creditors.