What is a sole proprietorship?

A sole proprietorship is defined as a business that is owned and operated by a single individual. This structure is one of the simplest forms of business organization and provides the owner complete control over all aspects of the business. The owner benefits from all profits generated, but also assumes all the liabilities and risks associated with the business.

The nature of a sole proprietorship allows for straightforward taxation, as business income is typically reported on the owner’s personal tax return. This means the business itself does not pay corporate taxes, simplifying the overall tax process for the owner. Sole proprietorships are particularly popular among freelancers, consultants, and small business owners because of their uncomplicated formation and management requirements.

Other options describe different types of business structures. A corporation involves multiple shareholders and has its own legal identity, while a partnership indicates that two or more individuals are running a business together. A non-profit organization is established for purposes other than making a profit, focusing on social causes instead. Thus, the uniqueness of a sole proprietorship lies in its singular ownership and operational style, which sets it apart from these other forms.