Taxes & Entities

Sole Proprietorships

A sole proprietorship is what you are automatically the moment you do business for yourself — no separation between you and the business, which buys total simplicity at the price of unlimited personal liability. It's the clearest lesson in what a legal entity is actually for.

  • Intermediate
  • 8 min total
  • 11 chapters

What decision this helps you make: Whether operating as a sole proprietor (maximum simplicity, unlimited personal liability) fits your risk — and when the liability exposure means it's time to form an entity.

What this topic is

The default legal form of a one-owner business with no separate entity: you and the business are the same legal person, so its income and its liabilities are both yours.

Why it matters

It's the baseline every other structure is measured against — and its defining trade (all simplicity for zero liability protection) teaches exactly what forming an entity buys.

Who should learn it

Anyone starting or running a one-person business, and anyone deciding whether they've outgrown "just being" their business.

What you will understand

  • You become one automatically — no formation needed
  • No separation: the business's income and debts are personally yours
  • Maximum simplicity, but unlimited personal liability
  • You owe self-employment tax and usually quarterly estimates

Prerequisites

Common misconception

"I haven't set anything up, so I don't have a business structure." You do — the default one. The moment you earn money working for yourself, you're a sole proprietor by law, with the business's liabilities attached to you personally. There is no neutral "no structure" option; the default is the one that offers the least protection.