Sole Proprietorship Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Sole Proprietorship, written in plain English, along with examples of how it is used.

What is Sole Proprietorship?

(n) A business in a trade name owned and conducted by a single person is called sole proprietorship concern. For all legal purpose, the concern is not considered as a separate entity other than the owner

History and Meaning of Sole Proprietorship

A sole proprietorship is a type of business in which an individual owns and operates the entire enterprise. The individual takes on all financial and legal responsibility for the business, which means that the business is not considered a separate entity from the owner. The sole proprietorship is the simplest type of business structure and is frequently used by individuals interested in starting their own business without partners or investors.

Sole proprietorships go back centuries, with many small family-owned businesses functioning as sole proprietorships. Over time, governments began recognizing sole proprietorships as a distinct legal entity, which allowed them to enter into contracts, open bank accounts, and pay taxes.

Examples of Sole Proprietorship

  1. Jane runs a bakery out of her home and is the sole proprietor of the business. She is responsible for buying ingredients, baking the goods, marketing, selling the items, and all other aspects of the business.

  2. Tom is a freelance graphic designer and is a sole proprietor of his design firm. He is responsible for creating the designs, invoicing clients, and handling all other business operations.

  3. Sarah runs a small consulting firm and is the sole proprietor of the company. She handles all aspects of the business, including client relations, marketing, and accounting.

Legal Terms Similar to Sole Proprietorship

  1. General Partnership: Similar to a sole proprietorship, but with two or more individuals sharing the financial and legal responsibilities of the business.

  2. Limited Liability Company (LLC): A hybrid business structure that provides the flexibility of a sole proprietorship with the limited liability protection of a corporation.

  3. Corporation: A legal entity that is separate from its owners, with its own legal rights and responsibilities. The owners of a corporation are not personally responsible for the debts or actions of the business.