What is a Sole Proprietorship

The vast majority of small business start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume "complete personal" responsibility for all of its liabilities or debts. In the eyes of the law, you are one in the same with the business. Hence, you are personal responsible for any liabilities the business may incur.  This is different from a Corporation which protects you and your personal assets from the liability of the corporation.

Although not required to register with the IRS it is necessary in most States.  A sole proprietor may do business utilizing their own name or with a trade name other than his or her legal name. In most States the sole proprietor is required to register the trade name or "Doing Business As" name.  That is if you are doing business as a name other than your own.  This also allows the proprietor to open a business account with banking institutions.

Advantages

Ease of Setup:  Easiest and least expensive form of ownership to organize.

Single Control:  Sole proprietors are in complete control, within the law, to make all decisions.

Income:  Sole proprietors receive all income generated by the business to keep or reinvest.

No Double Taxation:  Profits from the business flow-through directly to the owner's personal tax return.

Dissolution:  The business is easy to dissolve, if desired.

Disadvantages

Unlimited liability:  You are legally responsible for all debts and actions against the business. Their business and personal assets are 100% at risk.

Financing:  Financial institutions find it difficult to lend to this type of business because of the high risk factor. Hence you are limited to using funds from personal savings or consumer loans.

 Growth:  Have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.

Resources

The IRS Sole Proprietorship information