A sole proprietorship is a business owned by only one person. The most common form of ownership, it accounts for about 72 percent of all U.S. businesses. It’s the easiest and cheapest type of business to form: if you’re using your own name as the name of your business, you just need a license to get started, and once you’re in business, you’re subject to few government regulations.

Advantages and Disadvantages of Sole Proprietorships

Factors

Consideration

Start-up

Easy and cheap to form

Control

Owner has complete control over business

Benefactors

Owner receives all income earned by the business

Taxation

Profits earned are taxed as personal income (no any special federal and state income taxes are incurred)

Capability

Owner must supply all talents necessary to make the business a success.

Sustainability

If the owner dies, the business dissolves

Financing

All money borrowed by the business is loaned personally to the owner

Liability

Unlimited personal liability for losses incurred by the business or for any legal action

The sole proprietor bears unlimited liability for any losses incurred by the business. The principle of unlimited personal liability means that if the company incurs a debt or suffers a catastrophe (say, getting sued for causing an injury to someone), the owner is personally liable. As a sole proprietor, the owner puts his or her personal assets (bank account, car, maybe even home) at risk for the sake of the business. The owner can lessen the risk with insurance, yet the liability exposure can still be substantial.

Key Takeaways
A sole proprietorship is a business owned by only one person.
It’s the most common form of ownership and accounts for about 72 percent of all U.S. businesses.
Advantages of a sole proprietorship include the following:
Easy and inexpensive to form; few government regulations
Complete control over your business
Get all the profits earned by the business
Don’t have to pay any special income taxes

Disadvantages of a sole proprietorship include the following:
Have to supply all the different talents needed to make the business a success
If you die, the business dissolves
Have to rely on your own resources for financing
If the company incurs a debt or suffers a catastrophe, you are personally liable (you have unlimited liability)