DefinitionA sole proprietorship is an unincorporated business owned and run by one person, with no legal separation between the owner and the business. Its income and expenses are reported on Schedule C of the owner's personal Form 1040, and the net profit is subject to self-employment tax. Because it is the default structure, most new one-owner businesses start here without filing any formation paperwork.
It is the simplest way to operate, but the owner is personally liable for business debts and pays self-employment tax on all profit, so it is often the starting point for a firm's entity-planning conversation.
