What is a sole proprietorship?
A sole proprietorship is a form of business in which the company itself is not a legal entity, and a single owner is entitled to all profits and responsible for all liabilities.
This simple form of business is an unincorporated entity owned by an individual. The status comes automatically with business activities, and the owner does not have to take any formal action to form a sole proprietorship. However, the owner is still responsible for the federal, state, and local permits, licenses, and registrations required to run a business. While up front costs are minimal, the owner can be held personally liable for the debts and obligations of the business.
For tax filing, the owner must report income and/or losses and expenses, and withhold and pay all income taxes, including self-employment.
Other forms of business include an S Corporation and an LLC (Limited Liability Company).
An S Corporation is a form of corporation that includes the benefits of incorporation while being taxed as a partnership—passing income directly to shareholders and avoiding double taxation. In order to file as such, companies must meet certain IRS requirements.
An LLC is a form of business in which a company becomes a legal entity, providing limited liability to its owners.
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