What is Sole Proprietorship?

What is Sole Proprietorship?

A sole-proprietorship is a business that is owned by one person or by a husband and wife. Unless the business is formed as a corporation or a limited liability company, it will be a sole-proprietorship by default. One of the biggest advantages of operating a business as a sole-proprietorship is that it does not require that the business owner comply with statutory requirements regarding decision-making. This differs from a corporation where state statutes require shareholder’s meetings, the election of a board of directors and officers, and directors’ meetings. For many small business owners, the statutory requirements of operating a business as a corporation are just too cumbersome. After all, they are far too busy running the business to have meetings for the purpose of granting themselves the authority to run the business.

The biggest drawback to operating a business as a sole-proprietorship is the potential for personal liability. Most business owners expect to be responsible for the debts of their business and have probably given personal guarantees for any business loans. But if the business were to be sued for any reason and have a judgment entered against it, the business owner would be responsible for that as well. The amount of liability could exceed the entire value of the business and cause extreme financial hardship to the owner. For many business owners, avoiding the potential for this kind of liability is well worth complying with the requirements for operating as a corporation.

A sole-proprietorship is also unique in how it is treated for federal income tax purposes. All of the profits of the business are taxed as income to the owner. This may not be the form of business that would result in lowest amount of taxes being paid by the business owner.

Sole Proprietorship – Points to Consider

Easiest type of business organization to establish. There are no formal requirements for starting a sole proprietorship
Decision making is in direct hands of owner.
All profits and losses of the business are reported directly to the owner’s income tax return.
The startup costs for a sole proprietorship are minimal.
Owner has unlimited liability. Both the business and personal assets of the sole proprietor are subject to the claims of creditors.
Because a sole proprietorship is not a separate legal entity, it usually terminates when the owner becomes disabled, retires, or dies. As a result, the sole proprietorship lacks continuity and does not have perpetual existence like other business organizations.
It is difficult for a sole proprietorship to raise capital. Financial resources are generally limited to the owner’s funds and any loans outsiders are willing to provide.
Owner could spend unlimited amount of time responding to business needs.
If you are a sole proprietor then you may be liable for… Use Form…
Income Tax 1040 and Schedule C or C-EZ ( Schedule F for farm business)
Self-employment tax 1040 and Schedule SE
Estimated tax 1040-ES
Employment taxes:
Social security and Medicare taxes and income tax withholding
Federal unemployment (FUTA) tax
Depositing employment taxes
941 ( 943 for farm employees)
940 or 940-EZ

Excise Taxes Refer to the Excise Tax web page


We hope you found this article about “What is Sole Proprietorship?” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio



GROCO.com is a proud sponsor of The American Dreams Show.



The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:

Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…

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In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.

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