Sole proprietorship is the most common legal structure for small businesses. Being a sole proprietor, also referred to as a sole trader, means that you are the sole owner of an unincorporated business (i.e. a business that’s not recognized as a legal corporation). As a sole proprietor, you and your business are seen as one entity. As such, there’s no distinction between the profits earned from your business and your personal income. You’ll be responsible for maintaining accurate records of your income and expenses and paying taxes on any profits you make by filling out form 1040 using schedule C. You’ll also be personally liable for any debts that your business may incur. Typically, we recommend that if you’re a startup, it will be more tax efficient for you to register as a sole proprietor. You can later convert to an LLC as your business becomes more profitable.
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