The following article is excerpted from West's Encyclopedia of American Law . A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation. A person who does business for himself or herself is engaged in the operation of a sole proprietorship. Anyone who does business without formally creating a business organization is a sole proprietor.
Many small businesses operate as sole proprietorships.
Professionals, consultants, and other service businesses that require minimum amounts of capital often operate this way. A sole proprietorship is not a separate legal entity, like a partnership or a corporation. No legal formalities are necessary to create a sole proprietorship, other than appropriate licensing to conduct business and registration of a business name if it differs from that of the sole proprietor. Because a sole proprietorship is not a separate legal entity, it is not itself a taxable entity. The sole proprietor must report income and expenses from the business on Schedule C of her or his personal federal income tax return.