Sole proprietorship legal definition merriamwebster law. While a sole proprietorship is the simplest business structure, many businesses choose a corporate or llc form based largely on the protection from personal liability these forms offer. Legally the owner and the sole proprietorship are the same. Clic business and commerce setting up a small or medium. A sole proprietorship is owned by one person who reports the profits on a personal incometax return. A person who does business for himself is engaged in the operation of a sole proprietorship. The owner has unlimited liability as in some partnerships. Explain what a sole proprietorship is and how it is formed describe the advantages and disadvantages to having a sole proprietorship to unlock this lesson you must be a member. A sole proprietorship is a company which is not registered with the state as a limited liability company or corporation. Sole proprietors and sole proprietorships are not treated as separate legal entities.
No legal paperwork needs to be filed and no legal requirements need to be met in order to start a sole prop. The sole proprietorship is the definition given to a business not registered as a legal business entity. Even if a sole proprietor hires employees, a sole proprietorship is, in effect, a. Sole proprietorship definition in the cambridge english. The simplicity of a sole proprietorship can be a pro or a con, depending in your situation. Accounting for a sole proprietorship all profits and losses directly affect the finances of the owner meaning that all assets of the business are owned by the owner and all debts must be paid from their personal resources. Definition of sole proprietorship from the cambridge business english. Sole proprietors do not need an employment identification number, unless certain issues arise. Sole proprietorships also have liability and functional disadvantages compared to other business entities. A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation.
The sole proprietor is personally entitled to all of the profits and is responsible for any debts that the company incurs. Sole proprietorship definition entrepreneur small business. Jan 23, 2016 in a sole proprietorship, there is no legal distinction between the individual and the business owner. Post the definition of sole proprietorship to facebook share the definition of sole proprietorship on twitter. While the owner is entitled to all profits from the business, he is also responsible for the business debts, liabilities, and losses. Under virginia income tax law, sole proprietorships do not require separate tax filings. Pdf the aim of this study is to examine the situations of sole proprietorship. Proprietorship, partnership, and corporation a business can be structured into several basic forms. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. Sole proprietorship is the simplest and most common structure chosen to start a business. It is not a legal entity but a description of a type of business, so there are no formal papers to file to create one. With a sole proprietorship, the individual and business are one and the same.
A sole proprietorship, often called a sole prop, is a form of business that is owned by a single person and not incorporated. By definition, a sole proprietorship can have only one owner, and that owner is entitled to the profits and control of the business. The situations of sole proprietorship, ecommerce entrepreneurs. Furthermore, a sole proprietor is a natural personnot a legal personentity who fully.
Sole proprietorship meaning in the cambridge english dictionary. If you are the sole owner of a business, you become a sole proprietor simply by conducting business. Learn what it means to be a sole proprietor and what local registration, business license, and permit laws you may need to comply with. Pdf the situations of sole proprietorship, ecommerce. However, for accounting purposes the economic entity assumption results in the sole proprietorship s business transactions being accounted for separately from the owners personal transactions. A sole proprietorship is an unincorporated business owned by one person and is created when the entrepreneur or sole proprietor begins operating the business. A sole trader does not necessarily work aloneit is possible for the sole trader to employ. Hence, a sole proprietorship is a form of business organisation, wherein a single person owns, manages and controls, all the business activities and the individual who operates the business is called as a sole proprietor or, a sole trader. A sole proprietorship is a business owned and run by an individual. Sole proprietorship definition, examples, cases, processes.
The biggest disadvantage of a sole proprietorship is the potential exposure to liability. Because the owner is indistinguishable from the business, heshe remains personally liable for all debts of the business. The legal definition of sole proprietorship is a business by a single individual which is not formally organized and for which the individual and the business are indistinguishable in law. You are entitled to all profits and are responsible for all your businesss debts, losses and liabilities. A sole trader does not necessarily work aloneit is possible for the sole trader to employ other people. A sole proprietorship has a simple organizational structure. Sole proprietorship in simple words is a oneman business organisation. As the name suggests, sole means only one and proprietorship implies ownership.
Explain the meaning, definition and characteristics of sole proprietorship. A sole proprietorship files taxes on schedule c of the owners personal tax return and the income from the sole prop is taxed at the owners personal rate. A business that legally has no separate existence from its owner. With a sole proprietorship, there is no state filing to begin the business. Form use this form to w2, wage and tax statement and w3, transmittal of wage and tax statements.
Sole proprietorship definition, advantages and disadvantages. Sole proprietor definition and meaning collins english. Choose from 433 different sets of sole proprietorship flashcards on quizlet. Sole proprietorships are often the results of accidental entrepreneurs and new business owners beginning a business without really intending to start a company. Simplest, oldest, and most common form of business ownership in which only one individual acquires all the benefits and risks of. A simple form of business where there is one owner. For working capital, a sole proprietorship is generally limited to the individual funds of the sole proprietor, along with any loans from outsiders willing to provide extra capital. To explore this concept, consider the following sole proprietorship definition. Sole proprietorship legal definition of sole proprietorship. This means that there is no legal distinction between the proprietor and the.
A sole proprietorship is a oneperson business that, unlike corporations and limited liability companies llcs, doesnt have to register with the state in order to exist. Sole proprietorship definition what is sole proprietorship. As a result, a sole proprietorship lacks business continuity and does not have a perpetual existence as does a corporation. Forms for sole proprietorship internal revenue service. Sole proprietorships also have tax advantages over other business entities. The key feature of the sole proprietorship definition. Since a sole proprietorship has no legal identity apart from its owner, the owner is responsible for all debts of the business including loans, leases, contracts, and lawsuits.
A sole proprietor is unique because nothing is needed to form this business type. Sole proprietorship wex us law lii legal information. A sole proprietorship is an unincorporated business owned by a single individual or a couple who files a single tax return. A business structure in which an individual and hisher company are considered a single entity for tax and liability purposes. Assess your understanding of the characteristics of sole proprietorships with an interactive quiz and printable worksheet. This form of business is the oldest and most common form of business organisation. The simplest, the sole proprietorship, has one owner who pays personal income tax on profits and is personally responsible for any liabilities. A sole proprietorship, also known as a sole trader or a proprietorship, is an unincorporated business with a single owner who pays personal income tax on profits earned from. A sole proprietorship also known as individual entrepreneurship, sole trader, and proprietorship is a type of an unincorporated entity that is owned only. Add sole proprietorship to one of your lists below.
As soon as your enterprise has revenue, its a business. It is the business organization which is owned, managed and controlled by a single owner. The owner does not pay income tax separately for the company, but heshe. A sole proprietorship is the simplest and most common structure chosen to start a business. The study finds that most sole proprietorships in ecommerce are owned. The sole proprietor of a business is the owner of the business, when it is owned by only. A sole proprietorship is defined as a business owned by a single person who receives all profis and assumes all risks. Sole proprietorship osou odisha state open university. Setting up a small or mediumsized business in hong kong types of business organisation sole proprietorships, partnerships and limited companies what are the. Definition of proprietorship, partnership, and corporation. Learn sole proprietorship with free interactive flashcards. Organizational structure of sole proprietorship your business. With a corporate or llc company structure, the personal assets of the business owners are generally not at risk.
A sole proprietorship is a form of business where there is only one owner, and there is no legal distinction between the business and the owner. Jul 19, 2019 a sole proprietorship is an unincorporated business owned by one individual, making it the simplest form of business to start and operate. Report wages, tips, and other compensation, and withheld income, social security, and medicare taxes for employees. Apart from trading business, small manufacturing units, fabrication units, garages, beauty parlors, etc. Income and losses are taxed on the individuals personal income tax return. In a sole proprietorship, the owner is personally liable for any debts or obligations of the business. Anyone who does business without formally creating a business organization is a sole proprietor. Sole proprietor legal definition of sole proprietor. A sole proprietorship is a business that is run by a single individual who makes all the decisions, although the proprietor may engage employees. Generally, the ease of starting and maintaining a sole proprietorship makes it a good choice for small, low risk ventures where unlimited liability is unlikely to cause problems. What are the advantages and disadvantages of each type of business. Feb 20, 2020 other useful forms for sole proprietorship. A sole proprietorship, also known as the sole trader, individual entrepreneurship or proprietorship, is a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity. The owner, called a sole proprietor, does not pay separate income tax on the company, but reports all losses and profits on hisher individual tax return.
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