Sole Proprietorship Legal Definition:

A business by a single individual which is not formally organized and for which the individual and the business are indistinguishable in law.

Also known as a proprietorship.

Where an individual starts a business of any kind, and without another person, which would then constitute a partnership, the law treats the business as a sole proprietorship. This characterization results in the complete liability of the individual to the tort, contract and other liabilities of the business.

For example, litigation against a sole proprietor would usually refer to the defendant as:

"John Doe, operating as Doe Painting, a sole proprietorship"

Where a single individual carries on a business, it is necessarily conducted as either a sole proprietorship or a corporation.

A sole proprietorship is the default structure when a single individual starts a business as a partnership requires another individual and a corporation, a charter from the government.

Sole proprietorship signIn most jurisdictions, though, as a matter of transparency and consumer protection, a minor form of government registration is usually required, such as a city or other business license, or the registration of the business name. Tax authorities may also require registration and a tax number, as well as distinct financial disclosure in terms of income and expenses of the sole proprietorship, as opposed to such other income irrelevant expenses of the tax payer.

Sole proprietorships often operate under a name distinct from the owner ("Barb's Fish and Chips"), and the owner is often entitled to reserve a distinct name for exclusive use.

In a sole proprietorship, there is no sharing of responsibilities; the individual does it all and can fully bind the business by his/her sole signature. Conversely, and contrary to a corporation but similar to a general partner, the personal assets of the sole proprietorship are exposed to satisfy any tort, contractual or judgment debt of the business.

Most tax authorities prevent the sole proprietor from benefiting from favorable tax treatment as an employee of the business, since the proprietor and the employee are inseparable in law. Further, sole proprietors are not attractive to investors since - absent some contractual arrangement to the contrary - the individual proprietor has exclusive ownership in the assets of the business, and accounts receivable.

Sole proprietorships are common in the fishing and farming industry.

REFERENCES:

Unless otherwise noted, this page was written by of Duhaime.org

Always looking up definitions? Save time with our search provider (modern browsers only)

If you find an error or omission in Duhaime's Law Dictionary, or if you have suggestion for a legal term, we'd love to hear from you!