Lawyer Listings Add, Update, or Remove Listings

Sole Proprietorship

The default form of a one-owner business: no formation filing, the owner personally liable for every business debt, profit taxed on the owner's own return with self-employment tax, and when an LLC or corporation is worth the switch.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of Business Organizations law firms.

What it means

A sole proprietorship is what the law calls a business owned by one person who has not formed a separate entity. Nothing has to be filed to create one; a freelancer, a consultant or a home business is a sole proprietor from the first sale. The business may still need a local business license, a sales tax permit, a professional license for regulated work, and an assumed-name filing if it uses a name other than the owner's (see DBA).

The owner and the business are legally the same person. Every business debt, contract claim and court judgment against the business is a personal debt of the owner, collectable from personal savings, a car or, outside the protection of state exemptions, a home. Insurance is the main shield: general liability, professional liability where the work calls for it, and commercial auto coverage when a vehicle is used for the business, since personal policies often exclude business use. Forming a limited liability company or a corporation separates most business debts from the owner, although an owner remains liable for their own negligence and for any loan they personally guarantee.

For federal income tax, the profit or loss is reported on Schedule C of the owner's Form 1040, and the owner pays self-employment tax for Social Security and Medicare on net earnings, usually through quarterly estimated payments. A sole proprietor with no employees can use their own Social Security number, but needs an employer identification number to hire employees or to file certain excise or retirement plan returns. A one-member LLC is taxed the same way by default unless it elects otherwise (see S corporation election), so the choice to form an LLC is mostly about liability, not tax. Two or more owners working together without forming an entity are a general partnership, not a sole proprietorship.

Where this comes from

Self-employment tax: 26 U.S.C. §§ 1401 and 1402; estimated tax: 26 U.S.C. § 6654. Employer identification numbers: 26 C.F.R. § 301.6109-1. Default classification of a single-member LLC as disregarded: 26 C.F.R. § 301.7701-3(b)(1)(ii). Internal Revenue Service, Publication 334 (Tax Guide for Small Business) and Schedule C (Form 1040) instructions. Partnership formed by co-ownership for profit: Uniform Partnership Act (1997) § 202(a).

When people hire a lawyer for this

A sole proprietorship needs no lawyer to start. It is worth paying for advice when the business signs leases or large contracts, hires employees, works in a field with lawsuit risk, takes on a partner or investor, or is being sued; at that point a business lawyer and an accountant can tell you whether an LLC or corporation, better insurance, or contract changes would protect your personal assets.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

Find Business Organizations law firms in your state

Choose your state to see Business Organizations law firms in the city where we list the most; your city may be under “other cities”, A to Z. A state marked “Business Law” has no Business Organizations listing yet and opens the broader page.

Alabama (Birmingham)
+1 other city
- Montgomery
Alaska (Anchorage)
Arizona (Chandler)
+6 other cities
Arkansas (Little Rock)
California (Sacramento)
+19 other cities
- Anaheim
- Bakersfield
- Chula Vista
- Fontana
- Irvine
- Long Beach
- Los Angeles
- Modesto
- Oakland
- Oxnard
- San Jose
- Stockton
- and 7 more with fewer listed firms
Colorado (Denver)
+2 other cities
- Aurora
- Colorado Springs
Connecticut (Bridgeport)
Delaware (Wilmington)
District of Columbia (Washington)
Florida (Orlando)
+5 other cities
Georgia (Atlanta)
Hawaii (Honolulu)
Idaho (Boise)
Illinois (Chicago)
Indiana (Fort Wayne)
+1 other city
- Indianapolis
Iowa (Des Moines)
Kansas (Wichita)
Kentucky (Lexington)
+1 other city
- Louisville
Louisiana (Baton Rouge)
+2 other cities
- New Orleans
- Shreveport
Maine (Portland)
Maryland (Baltimore)
Massachusetts (Boston)
Michigan (Detroit)
Minnesota (Minneapolis)
+1 other city
- Saint Paul
Mississippi (Jackson)
Missouri (Kansas City)
+1 other city
- St. Louis
Montana (Billings)
Nebraska (Lincoln)
+1 other city
- Omaha
Nevada (Henderson)
+3 other cities
New Hampshire (Manchester)
New Jersey (Newark)
+1 other city
- Jersey City
New Mexico (Albuquerque)
New York (Buffalo)
+2 other cities
- New York City
- Rochester
North Carolina (Charlotte)
+5 other cities
North Dakota (Fargo, Business Law)
Ohio (Columbus)
+3 other cities
Oklahoma (Oklahoma City)
+1 other city
- Tulsa
Oregon (Portland)
Pennsylvania (Pittsburgh)
+1 other city
- Philadelphia
Rhode Island (Providence)
South Carolina (Columbia)
South Dakota (Sioux Falls)
Tennessee (Nashville)
+1 other city
- Memphis
Texas (Austin)
+12 other cities
Utah (Salt Lake City)
Vermont (Burlington)
Virginia (Richmond)
+3 other cities
Washington (Seattle)
+2 other cities
- Spokane
- Tacoma
West Virginia (Charleston)
Wisconsin (Milwaukee)
+1 other city
- Madison
Wyoming (Cheyenne)

Related terms

Entries on the same subject:

Other entries in the same area of law, each written from the same primary sources.

Asset Purchase vs Stock PurchaseThe two ways to buy a business - buying what it owns or buying the entity that owns it - and why the choice decides which liabilities come with it, which contracts transfer, and how the price is taxed.
AsylumProtection for a person in the United States who fears persecution in their home country on account of race, religion, nationality, political opinion or membership in a particular social group, and how it differs from withholding of removal.
Breach of ContractA failure to do what a binding agreement required - and the question a court actually asks is not whether someone broke a promise but what the loss was and whether it could have been avoided.
DACA (Deferred Action for Childhood Arrivals)What DACA gives and does not give, who may qualify, how renewals and work permits work, the travel risk, and why the program's status in the courts means checking current USCIS guidance before you file.
Franchise Disclosure Document (FDD)The document a franchisor must give a prospective franchisee before any contract is signed or money changes hands - what the federal rule requires it to contain, what it does not promise, and the state laws that add registration and relationship rights.
Green Card (Lawful Permanent Residence)How a non-citizen becomes a lawful permanent resident of the United States: the family, employment and other routes, the petition and the application, and why the order of the steps matters.
H-1B Specialty Occupation VisaThe employer-sponsored temporary work visa for jobs that require a specialized degree: the labor condition application, the annual cap and lottery, the employer's wage duties, and what happens if the job ends.
Indemnification and Hold Harmless ClausesThe contract provision under which one party agrees to cover another's losses and defend it against claims - what it usually reaches, the state laws that void some of it, and why insurance is the other half of the promise.
Independent Contractor vs EmployeeTwo legal categories of worker with very different consequences for taxes, overtime and liability - and a label in a contract does not settle which one applies.
Insurer's Duty to DefendThe promise in a liability insurance policy to pay for the policyholder's lawyer when they are sued, why it is broader than the duty to pay a judgment, and what happens under a reservation of rights.
K-1 Fiance(e) VisaHow a U.S. citizen brings a foreign fiance(e) to the United States to marry, the in-person meeting and disclosure rules, what must happen after arrival, and the alternative of marrying abroad first.
Letter of Intent (LOI) and Term SheetThe preliminary document that sets out the main terms of a deal before the contract is drafted - which parts of it are usually binding, which are not, and how a "non-binding" letter still creates obligations.
Naturalization (Becoming a U.S. Citizen)How a lawful permanent resident becomes a U.S. citizen: the residence, presence, character, English and civics requirements, the interview, and what happens after a denial.
Non-Compete AgreementA promise not to work for a competitor or start a competing business for a period after a relationship ends - enforceable in some states, sharply limited in others, and void in a few.
Non-Disclosure Agreement (NDA)A contract restricting what one or both sides may do with information the other shares - and, unlike trade secret law, it binds only the person who signed it.
Personal GuaranteeA promise by an individual - usually a business owner - to pay a company's debt personally if the company does not, which puts the owner's own assets behind the loan or lease regardless of the entity's liability shield.
Removal (Deportation) DefenseWhat happens when the government seeks to remove a non-citizen from the United States, the hearing they are entitled to, and the forms of relief an immigration judge can grant.
Tax Debt Relief (IRS Collection, Installment Agreements and Offers in Compromise)What the IRS can do to collect a tax debt, the rights a taxpayer has at each step, and the programs that let a debt be paid over time, settled for less, or put on hold.
Temporary Protected Status (TPS)The temporary protection from deportation, with a work permit, that the U.S. gives nationals of designated countries in crisis: who qualifies, why registration and re-registration deadlines matter, travel, and what happens when a designation ends.
U Visa for Crime VictimsImmigration status for non-citizen victims of certain crimes who help the police or prosecutors, how the law enforcement certification works, and the related T visa and VAWA protections.
UCC Financing Statement (UCC-1)The public notice a lender files to stake its claim on a borrower's equipment, inventory, receivables or other business property - the filing that decides who gets paid first when a business fails.

« All glossary terms

Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

If you cannot afford a lawyer, civil legal aid programs provide free help with many of these problems: civil legal aid programs by state.

Related free reference tools: statute of limitations for a personal-injury claim, by state, quoted from each state's official text - part of LawyerLand's legal reference tools.