A sole proprietorship is a type of business entity in which an individual owns and operates the business. It is the simplest and most common form of business ownership, and it is not a separate legal entity from the owner. This means that the owner is personally responsible for all debts and liabilities of the business.
One of the main advantages of a sole proprietorship is that it is easy and inexpensive to set up and maintain. The owner has complete control over the business and can make all decisions without having to consult with anyone else. Additionally, the owner receives all profits from the business.
One of the main disadvantages of a sole proprietorship is that the owner is personally liable for all debts and liabilities of the business. This means that if the business is sued or cannot pay its debts, the owner's personal assets may be at risk. Additionally, it can be difficult to raise capital for the business, as banks and investors may be hesitant to lend money to a sole proprietorship.
A sole proprietorship is not taxed as a separate entity from the owner. Instead, the owner reports the business income and expenses on their personal tax return using Schedule C. The owner is also responsible for paying self-employment taxes, which include Social Security and Medicare taxes.