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Sole Proprietorship and Law



One of the first things that a person thinking about starting a business must consider is the appropriate form for that business. The basic forms of doing business have traditionally been the sole proprietorship, the partnership, and the corporation.

The sole proprietorship is the simplest form for doing business. If the person starting the business does not do anything to adopt a particular form for the business, then that business by default is a sole proprietorship. However, a sole proprietorship can present significant drawbacks, business risks, and legal risks.

At A Glance

  • A sole proprietor is an individual who owns and operates a business without using a special business entity form, such as a partnership or corporate form. In essence, the person-owner is the business.
  • Sole proprietors have fewer formalities to follow, and they do not need to register the business with the state (depending on the type of business involved).
  • There is no liability shield in place to prevent creditors of the business from taking all of the sole proprietor's personal assets if the business fails.