Proprietorships
Sole Proprietorships
The oldest form of doing business, the sole proprietorship is also the simplest; it has the fewest
formalities and reporting requirements. Unfortunately, the owner is personally responsible for all debts of the business,
including those arising from the negligence of employees acting within the course and scope of their employment. An
additional disadvantage of the sole proprietorship is that the existence of the business is dependent upon the continued legal
capacity of the owner. Should the owner die or become incompetent, the business may have to be sold or transferred to the
heirs. This is the "default" form of doing business when only one person is involved.
How Formed? "Go for it!" As with any business, a proprietorship must obtain all required licenses and permits, file
payroll tax returns, and obtain workers compensation insurance coverage. If a business name other than the owner's is
to be used, a fictitious business name statement (a "d.b.a.") must be filed and published. (See the Appendix for a
sample of the Fictitious Business Name application form.) Otherwise, set up shop and start.
Taxation: Schedule "C" must be completed and attached to form 1040.
Separate property or community property? Business earnings are typically community property even if the business
assets are separate property. Community property is liable for the debts of both spouses, and is divided between the
spouses on divorce. A spouse has the right to dispose of one half of the community property upon death, and if the
spouse fails to do so the community property passes to the surviving spouse. These issues arise with any form of doing
business, but are highlighted with the sole proprietorship, where business assets are easily commingled with other
personal assets and records may not be regularly kept.
