A sole proprietorship is a business owned by a single individual. Being a sole proprietor doesn't mean that you necessarily operate the business alone. This can be the case, but you also may hire employees and/or independent contractors to do work for you and still operate as a sole proprietorship. The key issue is ownership -- you can have hundreds of employees or freelance workers, but if you are the only owner of the business (and you haven't incorporated or created another formal business entity), then your business is a sole proprietorship. A sole proprietorship springs into existence whenever an individual commences doing business, and the business has no separate existence from the owner.
In determining whether you want to operate as a sole proprietorship, you may want to consider the following factors:
- Liability: A sole proprietor is personally liable for all the debts and obligations of the business, including liability for your own unlawful acts and those of your employees. For instance, if your employee writes a defamatory article or posts copyright infringing material on your website or blog, then you can be held personally liable, and a winning plaintiff can can collect the judgment out of your personal assets, like your bank account or house.
- Formation: It is odd to speak about "forming" something that springs into existence whenever someone commences doing business. That said, there are some basic steps that sole proprietors should follow to make sure they are operating in compliance with federal, state, and local laws. These steps are relatively easy and cheap to perform. Please see the Forming a Sole Proprietorship section for details. Because the process is simple, you probably would not need the assistance of a lawyer.
- Management Structure: There are no special legal requirements regarding the management structure of a sole proprietorship. As the owner of a sole proprietorship, you exercise complete control over the management of the business. The extensive control retained by the owner is one of the significant advantages of choosing to operate as a sole proprietorship.
- Operation: A sole proprietorship is relatively easy and cheap to operate. Owners do not have to observe the extra "formalities" of a corporation and there are generally fewer record-keeping and reporting requirements than for corporations or LLCs. Sole proprietors must still meet those tax and other regulatory obligations imposed on all small businesses. For more on the tax obligations of small businesses, see the Tax Obligations of Small Businesses section and the IRS's informational guide, Publication 583 (1/2007), Starting a Business and Keeping Records.
- Ownership of Assets/Distribution of Profits: The owner of the sole proprietorship owns all assets of the business and is entitled to receive all profits from its operation. Among the most important assets of any business that operates a website or blog are its articles, posts, videos, and other content. For details on who owns what from a copyright perspective, see the Copyright Ownership of Articles and Posts section.
- Tax Treatment: A sole proprietorship itself does not pay a separate income tax at the entity level. Rather, the owner reports the business's profits or losses on his or her individual income tax return and pays tax at his or her marginal income tax rate. In this way, sole proprietors avoid the "double taxation" associated with certain corporations. Owners may also be able to deduct some business losses against personal income from other sources, like a salary from a "day job," interest on savings, dividends from other investments, and gains from the sale of non-business property. If an owner files jointly with his or her spouse, these business losses may also offset the spouse's income. For more information on the tax obligations of sole proprietorships, see the IRS's page, Sole Proprietorships (includes links to forms and other resources).
If you operate a blog or website individually, but do not generate revenue or intend to make a profit, then you are not operating a sole proprietorship, and the law will treat you like any other individual. You will be personally liable for your own unlawful actions and any debts or other obligations you incur in the course of your activities. If you start collaborating with others, the issues raised in the Informal Group section will become relevant.