April 15, 2024

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What is a sole proprietorship?

What is a sole proprietorship?

What is a sole proprietorship?

What is a sole proprietorship?

A sole proprietor (also known as an independent trader) is someone who runs their own business as an individual. The sole owners are often known as freelancers, freelancers, or contractors.

A sole proprietorship is an unincorporated business structure and one of the simplest ways to start a business. In a sole proprietorship, one individual owns the entire business. This means that, typically, he will have full control over the management of the business and complete autonomy in developing the company’s brand.

The sole owner receives all of the company’s profits after paying taxes on them, instead of having to share them with a partner or shareholders. In addition, he accepts full responsibility for paying taxes on his winnings.

A sole proprietor is often the only person working for the business, as hiring employees can be too much of a hassle because you would need to register as an employer and manage payroll. However, he may hire other sole proprietors to perform services on his behalf.

It is possible for a person to become a sole proprietor while working a part-time or full-time job. In itself, it is perfectly legal as long as all winnings are reported to the relevant tax authorities. However, employers might take issue with this idea. It is highly recommended to research it before starting a side business.

As a sole proprietorship grows, it may be wise to restructure it as a limited liability company in line with expansion. What Is A Sole Proprietor?

Examples of sole proprietors

As we see, the definition of a sole proprietorship goes beyond someone who sells shoes, although many retailers do, in fact, have their own sole proprietorship.

Here are some common examples of sole proprietors:

independent merchants

These include construction workers, gardeners, landscapers, carpenters, and plumbers.

knowledge workers

Freelancers in the digital and creative sectors are often sole proprietors. These include graphic designers, web designers and developers, copywriters, marketing professionals, and social media specialists.

Workers in the “gig economy” (short and sporadic jobs)

Those who work in the gig economy are also often sole proprietors, whether they run their business alongside their full-time employment or are fully dedicated to their business. This includes taxi drivers, couriers, delivery men, and private teachers.

Workers in the beauty and wellness sector

Some of these sole proprietors go on to develop successful brands and limited liability companies. In fact, some of the biggest names in the beauty and wellness industry started out as sole proprietorships.

Advantages and disadvantages of establishing your business as a sole proprietorship

A sole proprietorship is convenient because it is easy to set up and break down. It is often simpler to calculate taxes for these business structures than for partnerships or incorporated companies.

A sole proprietor in the United States, for example, can use their social security number (SSN) to pay taxes instead of needing an employer ID. In addition, the business owner owns all the profits the business generates after taxes.

However, because it is not registered, it does not have the protection that the government provides to incorporated companies.


  • quick and easy to organize
  • Easier taxes thanks to not paying taxes in the United States
  • less administration
  • low cost


  • a single owner has unlimited liability
  • it can be difficult to raise business capital as an independent trader
  • you have fewer tax planning opportunities since taxes are paid on income in the same year it is received

How does a sole proprietor pay taxes?

In the United States, a sole proprietor must complete Form 1040, Schedule C, and other forms at tax time each year.

How do I go from a sole proprietorship to a limited liability company?

In the United States, the sole proprietor must complete the charters of organization at his or her secretary of state and obtain an employer identification number from the IRS.