If you’ve ever sold products online, done freelance work, or offered a service for pay without forming a separate legal entity—you’ve likely been a sole proprietor. It’s the simplest way to run a business and the easiest to set up, which is why so many first-time entrepreneurs start here.
But “simple” doesn’t always mean “best.” A sole proprietorship offers speed and control, but it also comes with trade-offs—especially when it comes to liability and growth potential. In this post, we’ll explain exactly what a sole proprietorship is, how it works, and when it might (or might not) be the right fit for your business.
Sole Proprietorship Explained
A sole proprietorship is a business owned and operated by one person, with no legal separation between the owner and the business. That means you keep all the profits—but you’re also personally responsible for all the debts, taxes, and legal obligations.
It’s the most common business structure in the U.S., often chosen by freelancers, consultants, independent tradespeople, and small retailers. If you’re working under your own name and haven’t filed paperwork to create another type of entity, you’re almost certainly operating as a sole proprietor by default.
Common examples include:
- Independent contractors (graphic designers, writers, IT specialists)
- Tradespeople (plumbers, handymen, cleaners)
- Small-scale retail or online sellers
- Personal service providers (photographers, fitness trainers, tutors)
It’s a “you are the business” model—fast to start, easy to run, but tied directly to your personal finances.
How to Start a Sole Proprietorship
One of the biggest advantages of a sole proprietorship is how quickly you can get started. In many cases, you can begin operating the same day you decide to launch—no complex filings or expensive legal setup required.
Here are the basic steps:
1. Choose your business name
You can operate under your own legal name or register a “Doing Business As” (DBA) name if you want something different on signs, invoices, and marketing.
2. Check licensing and permits
Depending on your industry and location, you may need specific licenses or permits. This could be as simple as a general business license or as specific as a health permit for food service.
3. Get your tax ID (if required)
Sole proprietors can use their Social Security Number for taxes, but you may choose to get an Employer Identification Number (EIN) from the IRS—especially if you plan to hire employees or open a business bank account.
4. Set up your finances
While not legally required, opening a separate business bank account helps keep your finances organized and makes tax time easier.
5. Keep track of income and expenses
Since your business income is your personal income, good record-keeping is essential for accurate tax reporting.
Unlike LLCs or corporations, you won’t need to file formation documents with the state in most cases. That’s part of the appeal—it’s straightforward, fast, and affordable to launch.
Pros of a Sole Proprietorship
A sole proprietorship is the most popular starting point for small businesses for a reason—it’s simple, fast, and puts you in complete control. Here are some of the biggest advantages:
1. Easy setup
You can often start operating the same day you decide to launch. No complex legal filings or expensive attorneys required.
2. Low cost
Aside from licensing fees or permits, there’s virtually no cost to create a sole proprietorship. This makes it ideal for testing a business idea without a big upfront investment.
3. Full control
You make every decision—what to sell, how to operate, and where to invest profits. There’s no board, no partners, and no shareholder meetings.
4. Direct connection to customers
Because you’re the sole owner and operator, customers interact directly with the decision-maker, which can build trust and loyalty.
5. Easy tax filing
Your business income is reported directly on your personal tax return (Schedule C), making taxes simpler than with more complex structures.
If you value speed, affordability, and autonomy, a sole proprietorship is one of the most straightforward ways to get your business off the ground.
Cons of a Sole Proprietorship
While the simplicity of a sole proprietorship is appealing, it comes with significant downsides—especially as your business grows.
1. No liability protection
Because there’s no legal separation between you and your business, you’re personally responsible for any debts, lawsuits, or obligations. If something goes wrong, your personal assets—like your home or savings—could be at risk.
2. Harder to raise capital
Investors and lenders often see sole proprietorships as higher risk, making it more difficult to secure funding or favorable loan terms.
3. Limited credibility in some industries
While plenty of sole proprietors operate professionally, certain clients or partners may prefer to work with LLCs or corporations for perceived stability.
4. All responsibility is on you
From decision-making to day-to-day operations, you carry the full load. If you get sick, take time off, or face an unexpected setback, the business may stall.
5. Potential tax disadvantages
Without the flexibility of other business structures, you might miss out on certain tax-saving opportunities available to LLCs or corporations.
For many entrepreneurs, these challenges are manageable in the early stages—but as revenue, risk, and opportunity grow, switching to a different structure often becomes the smart move.
When a Sole Proprietorship Makes Sense
A sole proprietorship can be a great fit—especially in the early days of your business—if your needs are simple and your risk is low.
Best use cases:
- Side hustles and passion projects – If you’re testing an idea or earning extra income on the side, the low setup cost makes it easy to start.
- Low-risk industries – Businesses with minimal liability exposure (like consulting, tutoring, or digital services) often work well as sole proprietorships.
- Seasonal or short-term businesses – If you’re running a pop-up shop, seasonal service, or one-off project, the simplicity makes sense.
- Early-stage businesses – Many owners start as sole proprietors to keep overhead low, then switch to an LLC or corporation when they grow.
When to consider changing:
If your business starts generating significant revenue, hiring employees, or taking on more liability, moving to an LLC or corporation can give you stronger legal protections and more growth opportunities.
Conclusion: Simple, but Not Always Forever
A sole proprietorship is the easiest way to start a business—fast setup, low cost, and full control. For many entrepreneurs, it’s the right choice for getting an idea off the ground or running a low-risk venture.
But as your business grows, so do your responsibilities and potential risks. At some point, moving to a structure like an LLC or corporation can offer protection, tax advantages, and room to scale.
No matter your structure, having the right space to operate is just as important as your legal foundation. At WorkBay, we make it simple to find a professional, move-in-ready space that fits your needs—whether you’re just starting out or leveling up.
Get Your Space
See available locations, schedule a tour, or talk to our team today.
