Sole Proprietorship
A business owned and operated by a single individual with no legal distinction between the owner and the business.
What is Sole Proprietorship?
A sole proprietorship is the simplest and most common business structure in the United States, where a single individual owns and operates the business with no legal separation between themselves and the entity. The owner reports business income and losses on Schedule C of their personal tax return (pass-through taxation) and is personally responsible for all business debts, contracts, and legal liabilities — there is no liability shield. Sole proprietorships require minimal paperwork to start, but the unlimited personal liability is a significant risk: creditors can pursue the owner's personal assets such as savings, home equity, or investments if the business cannot pay its debts.
Example
A freelance graphic designer who works independently without forming an LLC or corporation is automatically a sole proprietor. If a client sues for $50,000 over a missed deadline, the designer's personal bank accounts and assets are at risk — unlike an LLC owner, who would typically be protected by the corporate veil.
Source: IRS — Sole Proprietorships