Glossary · Legal & Admin
What is Sole Proprietorship?
Definition
A sole proprietorship is an unincorporated business owned and run by one person, with no legal separation between the owner and the business.
Why it matters
It is the default structure in the US when you start earning money on your own without forming another entity. It is simple and cheap, but you are personally responsible for business debts and legal claims.
A freelance photographer earning $40,000 of net profit reports that income on a Schedule C with her personal tax return and pays self-employment tax of about 15.3 percent on it, roughly $5,650, in addition to income tax. She has no separate filing fee to start, though she may need a local license.
Many owners later form an LLC for liability protection. This is general information, not legal or tax advice; rules vary by state, so check with an accountant or attorney.
Common mistakes
- !Assuming the business name protects your personal assets from lawsuits.
- !Forgetting to make quarterly estimated tax payments.
Frequently asked questions
What is Sole Proprietorship?
A sole proprietorship is an unincorporated business owned and run by one person, with no legal separation between the owner and the business.
What mistakes do beginners make with Sole Proprietorship?
Assuming the business name protects your personal assets from lawsuits. Forgetting to make quarterly estimated tax payments.
Related terms
Go deeper