Global HR Glossary

What is a Sole Proprietorship? 

A sole proprietorship is the simplest form of business ownership where a single individual owns, manages, and is responsible for all aspects of the business. This structure allows for complete control and easy setup, but also places all business liabilities directly on the owner.

Characteristics of a Sole Proprietorship

• Simple Structure: Easy to establish with minimal regulatory requirements.
• Personal Liability: The owner is personally liable for all business debts and obligations.
• Tax Treatment: Income and losses are reported on the owner's personal tax returns, and profits are subject to self-employment taxes.

Pros and Cons

• Pros:
  
  • Full control over business decisions.
  • Minimal bureaucracy and lower startup costs compared to other business structures.
• Cons:
  
  • Unlimited personal liability, which can put personal assets at risk.
  • Difficulty in raising capital and less credibility with financial institutions.