What is Sole Proprietorship? A Sole Proprietorship is an unincorporated business run by one person that has no separate legal distinction from the business owner. It is the simplest of all business forms to run and works well when you don’t need employees and your income is in the lower tax brackets. You have sole control over all business decisions as they relate to your business activities, which are run with the intention of making a profit. There are no forms to file annually and no incorporation filings. Sole Proprietorship is the cheapest way to run a
business and can be appropriate when your expenses won’t cover filing costs and annual renewal fees. Hobbies are not considered legitimate business activities and their expenses cannot be used to offset income.
The main drawback of a Sole Proprietorship is that you (and only you) are responsible for all risks, debts, losses incurred by your business activities. In contrast, when a Limited Liability Corporation (LLC) or another business form is used, a layer of liability protection is inserted between the business activities and the person.
Module 1 Quiz