Definition
A business entity that is owned by only one person is known as a single or sole proprietorship. The owner of a sole proprietorship is entitled to all of the profits of the business as well as its debts.
Explanation
Unlike corporations and limited liability companies, there is very little government oversight with a sole proprietorship. They are very simple to establish and are often the business model for small retail stores and professional practices such as general contractors, accountants, financial advisors, lawyers, dentists and medical doctors.
The owner of a sole proprietorship is not only entitled to the profits from the business, but is personally responsible for all liabilities and debts incurred by the business. This means any of the assets in the possession of the owner can be seized and sold to pay the debts of the business; the owner has unlimited liability.
Finally, if the owner of a sole proprietorship leaves the business or passes away, the business would terminate operations.
Related Terms
corporation, limited liability company, partnership, drawing account, organization costs, business organization, articles of incorporation
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