There are four basic forms of business organizations. Each has its own benefits and drawbacks and is treated differently for legal and tax purposes. A sole proprietorship is typically a business owned and operated by one individual, or very often by a husband and wife. A sole proprietorship is not considered to be a legal entity under the law, but rather is an extension of the individual who owns it. The owner has possession of the business assets and is directly responsible for the debts and other liabilities incurred by the business.
Creditors generally have recourse to the personal assets of the owner.
The income or loss of a sole proprietorship is combined with the other earnings of the individual for income tax purposes. A sole proprietorship is perhaps the easiest form of business to own and operate because it does not require any specific legal organization, except of course, the normal requirements such as licenses or permits. A sole proprietorship typically does not have any rules or operating regulations under which it must function. The business decisions are solely the result of the owner's abilities. Partnership Partnerships can take two legal forms, general or limited.