What is a Sole Proprietorship?

A sole proprietorship is a business that’s owned by a single individual, and in which there’s no barrier between the individual and the business itself. In a sole proprietorship, one person is going to own and run the business, and the income and expenses of that business will flow through the individual. Any tax consequences for the business will be the individual’s own tax consequences.

Many professionals and entrepreneurs run sole proprietorships, such as independent bookkeepers and accountants. It’s a very simple type of small business, but it doesn’t offer the legal protections of other forms of company. The advantages to a sole proprietorship are that it’s easy and fast, and that a single individual has complete control over the business. However, there are disadvantages, too: the liabilities of the business become the liability of the owner, and the owner is required to pay taxes on all the income that the business makes, rather than just the income that they take. Business owners should consult with a tax professional before they decide on how they should structure their business. Some Sole Proprietorships can get away without having a federal EIN Number but there are many cases in which a Sole Proprietorship needs to obtain a federal EIN or Tax ID Number in order to run operations.