sole proprietorship
A sole proprietorship is the most common and simplest form of business ownership. You own and run the business yourself, and there is no legal separation between you and the business.
Part of a bigger picture
A sole proprietorship is just one of the many business structures available. Learn how corporations, partnerships, LLCs, and others compare in Britannica Money’s guide to business structure types.
If you begin selling goods or services without forming a separate legal entity, you are a sole proprietor by default. Many self-employed workers, side hustlers, and small-scale businesses take this form—an accountant serving multiple clients, a dentist with an independent practice, a pastry chef selling to local restaurants, or a neighborhood lawn service.
Unlimited liability
In a sole proprietorship, unlimited liability means personal and business assets are equally at risk if the business cannot meet its obligations. Limited liability structures—such as LLCs and corporations—generally shield personal assets from most business debts.
A sole proprietorship is easy to set up and offers full control over business decisions. No formal paperwork is needed. All income and expenses are reported on Schedule C of your Form 1040 and taxed at your personal rate, and you pay self-employment tax on your net income.
The trade-off for simplicity is liability. Because the business and the owner are legally the same, personal assets (such as your home or car) can be used to cover business debts or legal claims. Some sole proprietors operate indefinitely this way, while others convert to a limited liability company (LLC) or corporation as their business grows or takes on greater risk. Another option for a sole proprietor is to offset business risks with an umbrella liability policy.