What is Sole Proprietorship?
Definition A 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.