What is a sole proprietorship?

A sole proprietorship is defined as a business that is owned and operated by a single individual. This structure provides the owner with complete control over decision-making and the operations of the business. Furthermore, all profits generated by the business belong to this individual. However, the owner also assumes all liabilities, meaning they are personally responsible for any debts or legal obligations incurred by the business. This characteristic is crucial, as it distinguishes sole proprietorships from other business structures that may provide some degree of liability protection to their owners.

Understanding this type of business structure is important because it highlights the straightforward nature of a sole proprietorship, which contrasts with more complex entities like corporations or partnerships. In those cases, the ownership might be shared among multiple individuals or stakeholders, and liability may not fall entirely on a single person. Therefore, recognizing the implications of being a sole proprietor—including full control and full liability—is essential for anyone considering this business model.