Define: Sole Proprietorship

Business, Legal & Accounting Glossary

Definition: Sole Proprietorship


Quick Summary of Sole Proprietorship


A unincorporated business that is owned and managed by one person.



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Full Definition of Sole Proprietorship


A sole proprietorship is a business that one person owns, operates, and in many cases creates. It is the most common type of business organization. The sole proprietorship is also the simplest to start or terminate, the simplest to manage, the oldest, and subject to the least state or federal regulation. Freelancers and independent contractors frequently use the sole proprietorship form. Unlike limited partnerships and corporations, the sole proprietorship does not create a legal entity separate from the owner. However, profits from a sole proprietorship business are treated as the owner’s personal income and taxed accordingly. In addition, a self-employment tax is assessed by the IRS on the net income of the sole proprietorship. The owner of a sole proprietorship is also personally responsible for all debts or other liabilities incurred by the business and can be driven into bankruptcy if the sole proprietorship goes bankrupt. Finally, a sole proprietorship may have more difficulty obtaining a bank loan or line of credit than other forms of business. For that reason, the owner of a sole proprietorship may choose to transition into a limited liability company (LLC), S Corporation, or other forms of business structure, if the business is successful and grows.


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Examples of Sole Proprietorship in a sentence


He runs his three small restaurants as a sole proprietorship as he doesn’t feel he needs the liability protections offered by incorporation.
Many small businesses are sole proprietorship, at least in the beginning.



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https://payrollheaven.com/define/sole-proprietorship/
Modern Language Association (MLA):
Sole Proprietorship. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. April 05, 2020 https://payrollheaven.com/define/sole-proprietorship/.
Chicago Manual of Style (CMS):
Sole Proprietorship. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/sole-proprietorship/ (accessed: April 05, 2020).
American Psychological Association (APA):
Sole Proprietorship. PayrollHeaven.com. Retrieved April 05, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/sole-proprietorship/

Definition Sources


Definitions for Sole Proprietorship are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 14th February, 2020