What is a Sole Proprietorship?

A sole proprietorship is a business that is not incorporated, so that a single individual is entitled to the entire net worth of the business, and is personally liable for its debts. The individual and the business are considered to be the same entity for tax purposes, so the individual pays personal income taxes on the profits generated by the business. A sole proprietorship is the simplest of all business entities.

Disadvantages of a Sole Proprietorship

The main problem with a sole proprietorship is that creditors of the business can obtain payment from the personal assets of the owner. This person has no way to block creditor access to his or her assets. Another disadvantage is that, with just one owner, it is difficult to gain sufficient capital to expand the business. With more owners, as would be the case with a partnership, it would be easier to raise capital.