Definition

A sole proprietorship is a type of business entity that is owned by one natural person and there is no legal distinction between the owner and the business.

Advantages

  • Easy and inexpensive to set up
  • Losses incurred can be applied against the owner’s other income which will reduce the owners income taxes.
  • Separate tax returns are not required.

Disadvantages

  • The tax rate of the business is the same as that of the owner. Any income earned by the business is taxed at the marginal rate of the owner.
  • The business entity does not have the same prestige as that of an incorporated company.
  • Financing may be more difficult to get.