A sole proprietorship is an unincorporated business with one owner that pays income tax on profits.
Sole proprietorships are easy to set up and liquidate due to lack of government involvement, making them popular with small business owners and contractors.
Most small businesses start out as sole proprietorships and eventually transition to a limited liability company or corporation as the company grows.
One of the main drawbacks of individual entrepreneurs is that they do not have any state protection, as they are not registered. This means that all obligations extend from the business to the owner.
Sole proprietors report their income and expenses on their personal tax returns and pay income and self-employment taxes on their profits.