What is a Sole Proprietorship?

By Tom Loonan | Business Law

The most basic form of a business entity is a sole proprietorship. There are no formalities associated with this formation and it is established merely by a single person, or married couple, engaging in business activities. There are no formalities that govern the operation of a sole proprietorship and the owners are permitted to co-mingle business and personal assets. While not required, some sole proprietor’s chose to register a business name in the state as a D/B/A, but such registration is merely an operating identity and does not extend any formal protection from personal liability.

While a sole proprietorship is the easiest and most flexible of the entity types from a management stand point, it also provides the least amount of protection. A sole proprietorship operates and contracts in the individual owners own name and the individual remains personally liable for the debts and liabilities incurred by the business. Often sole proprietor’s will obtain business liability insurance policies to provide some buffer protection for potential liability, but if the liability exceeds the insurance limits the individual’s personal assets may be at risk. A sole proprietorship reports the business profits and losses on the owner/operator’s personal tax returns.

Contact us today if you have questions regarding the formation of this type of business entity or other business entities.

You can also call our Stillwater, MN office at 651-439-2878 or Hudson, WI office at 715-386-3733.

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