A sole proprietorship is a form of business in which one person owns all the assets of the business in his or her name. A person who does business for himself and who does business without formally creating a separate business organization is engaged from that of the sole proprietor. Many small businesses operate as a sole proprietorship, including professionals, consultants, and other service businesses. Often, these are businesses that require minimal amounts of capital.
A sole proprietorship is not a separate legal entity, like a partnership or a corporation, this means no legal formations are necessary to create or form this business, other than licensing to conduct business and registering of a business name if it differs from the sole proprietor. Because a sole proprietorship is not a separate legal entity the sole proprietor must report income and expenses from the business on Schedule C of her own personal federal income tax return.
A major concern for persons organizing a business enterprise is limiting the extent to which their personal assets, unrelated to the business itself, are subject to claims of business creditors. A sole proprietorship gives the least protection because the personal liability of the sole proprietorship is generally unlimited. Both business assets and the personal assets of the business owner are subject to a claim of the business’s creditors. In addition, existing liabilities of the sole proprietor will not be extinguished upon the dissolution or sale of the sole proprietorship.
Do not hesitate to contact the attorneys at Tishkoff if you have questions regarding business law or litigation. The attorneys at the Tishkoff law firm, located in downtown Ann Arbor, Michigan, may be reached by phone or email. This contact information is available at Tishkoff’s web site: www.Tish.Law.