Why are business structures important?
The business structure you choose is important because it impacts every aspect of the business. A few impacts include the daily operations, taxation options, liabilities, and filing requirements.
Is sole proprietorship the same as self-employed?
All sole proprietors are self-employed. But not all self-employed people are sole proprietors. Other ways to be self-employed include becoming an independent contractor or owning a different business structure.
What’s the difference between a sole proprietorship and a partnership?
A sole proprietorship only has one owner. A partnership involves two owners who share the responsibilities, profits, and losses of the business.
How is a sole proprietorship different from an LLC?
A sole proprietorship is not a separate legal entity. Instead, the business owner is liable for all debts and lawsuits against the sole proprietorship. On the other hand, an LLC is a separate legal entity from its owner. With that, the owner is not personally liable for the debts and lawsuits against the LLC.
Why are sole proprietorships popular?
Sole proprietorships are very popular because there is no paperwork to get started. The sole proprietorship begins when you start business operations. It’s a great way to explore business ideas without committing to the creation of an LLC.
Can sole proprietors hire employees?
Yes, sole proprietorships can hire employees.Yes, sole proprietorships can hire employees.
Who should start a sole proprietorship?
A sole proprietorship is most suitable for business owners with small operations and limited risks. If your business is a risky enterprise involving liabilities, then an LLC might be a better fit.
How is a sole proprietorship formed?
You don’t need to take any formal action to create a sole proprietorship. The sole proprietorship is formed when you begin business operations. If you want to create a sole proprietorship, find out more about the options in our full guide.


The easy entry of a sole proprietorship provides a useful opportunity to jump into your business without any extra paperwork. But understanding the characteristics of a sole proprietorship is important. At some point, you might decide to incorporate your business to protect against potential liabilities. But for most, a sole proprietorship is a great place to start. 

Ready to set up your sole proprietorship? Read our full guide.

About the Authors

Sarah Sharkey

Written by: Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing.

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Joe Templin

Reviewed by: Joe Templin

Charted Financial Consultant - CAP

Joe Templin is a Charted Financial Consultant (ChFC), MCEC, CEC, CLU and CAP with well over three decades consulting, coaching, and teaching. He's an author of the Amazon Kindle #1 New Release "Every Day Excellence" and host of The Human Kaizen Podcast.

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Kal Salem

Fact checked by: Kal Salem

MA Accounting - Arizona State University

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA Services LLC.

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