General Structure

• In a sole proprietorship, one person owns all assets and is personally responsible for all obligations incurred by the business. Most independent contractors and freelancers qualify as sole proprietors of their businesses. Although a sole proprietorship is generally cheaper to set up and operate than other types of businesses, it may still be subject to certain government requirements.
  
  

Taxation

• Unlike a corporation, a sole proprietorship does not exist as an entity with a legal existence that is separate from the owner. Therefore, the sole proprietor does not need to submit separate taxation forms for the business; instead, he reports the business's income and losses as his own personal income and losses. This is known as "pass-through" taxation. A sole proprietor must pay self-employment taxes, calculated on a Schedule C and submitted with his personal income tax forms. Sole proprietors may deduct many of their business expenses.
  
  

Liability

• A corporate entity provides a shield from personal liability for business debts. Sole proprietors have no such shield; they will be held personally liable for any debts incurred by their enterprise. Potential creditors include vendors, lenders and winners of any judgments rendered against the sole proprietor in a lawsuit. Such creditors may attach any of the sole proprietor's personal assets to satisfy the debt. Sole proprietors who wish to limit their liability may look into incorporation or some form of liability insurance.
  
  

Formalities

• Sole proprietorships are spared the complicated state registration process demanded of corporations. Many counties and municipalities, however, require sole proprietors to obtain a business license and pay local taxes. Sole proprietors whose business names differ from their own may also need to register the "assumed business name" with a local authority and publish a statement to the effect that they are doing business under an assumed name.
  
  

Further Considerations

• Because a sole proprietorship is so legally aligned with its owner, the business will not continue beyond the period of life of its owner. A sole proprietorship offers the advantage of easy management and supervision, but the proprietorship will depend on the owner's management; should anything happen to the owner, it may be disadvantageous to the business. For the same reason, a sole proprietorship may be more difficult to sell or transfer than other business entities.