Sole Proprietorship.
In plain English
A sole proprietorship is an unincorporated business owned and run by one person. You do not have to file paperwork to create one; if you start working for yourself, you are a sole proprietor by default. The business income and expenses go on your personal tax return through Schedule C, and the business is not a separate legal entity from you. That simplicity is the upside, but it also means there is no liability shield between your business and your personal assets.
01Why it matters
It is the cheapest, fastest way to start, but because you and the business are legally the same, a business lawsuit or debt can reach your personal savings, car, or home.
02The math, step by step
A dog walker who takes $25,000 in cash and Venmo payments without forming any company is a sole proprietor. She reports the income on Schedule C. If a client sues her after a dog bite and wins, her personal bank account is exposed because there is no legal wall between her and the business.
03What this is NOT
A sole proprietorship is not an LLC. A sole proprietorship gives you no liability protection, while an LLC is a separate legal entity formed with the state that shields your personal assets.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice