A sole proprietorship is a form of business in which a single individual carries on a for-profit business as the exclusive owner and decision-maker. While the vast majority of sole proprietorships are operated by single individuals, California recognizes a husband and wife that conduct a business jointly, hold joint title to the business assets, and still come within the definition of a sole proprietorship. Because a sole proprietorship is the simplest form of a business entity, the business owner need not adhere to any special formalities.
Management and Control
With the exception of a business owned by a husband and wife, a sole proprietorship is operated by a single individual; thus, the sole proprietor has exclusive management and control of the business.
A sole proprietor is personally liable for all obligations and debts of the business. Thus, the business assets and personal assets of the sole proprietor are subject to the risks of the business. Moreover, in California, if the owner is married, the martial community property is at risk and subject to attachment by creditors. If the business is conducted under a name which does not show the owner's surname or implies the existence of additional owners, the owner is required to file a fictitious name certificate and publish a notice in the newspapers.
There are no rules governing capitalization of a sole proprietorship, although it is prudent to start the business with enough cash available (either on hand or through a loan or line of credit) to meet the company's foreseeable debts and liabilities.
Continuity of Existence
The sole proprietorship continues as long as the sole proprietor desires to operate the business and is legally competent. If the business owner is adjudged legally incompetent, becomes incapacitated, or dies, the sole proprietorship ceases to exist. An owner may sell the business as he or she chooses.
A sole proprietor is taxed on business income and may deduct allowable business expenses on his or her personal income tax return.
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