What defines a sole proprietorship?

A sole proprietorship is defined as a business owned by one individual. This structure is the simplest form of business organization, where the owner has complete control over all aspects of the business and is personally responsible for its debts and obligations. The owner retains all profits and has the freedom to make decisions without needing to consult partners or shareholders.

This structure is favored by many small business owners due to its ease of formation and minimal regulatory requirements. Unlike corporations or partnerships, a sole proprietorship does not require formal agreements or registrations beyond local business licenses. The individual owner is personally liable for all business activities, meaning that their personal assets could be at risk if the business encounters financial trouble. This is a crucial aspect of its definition, setting it apart from other business types that offer limited liability protections.