Sole Proprietorship Definition

What Is a Sole Proprietorship

A sole proprietorship is the simplest form of business ownership, where one person owns and operates the business without forming a separate legal entity. In payroll and HR, sole proprietorships often classify as disregarded entities unless they elect corporate tax treatment.

Sole Proprietorship and Payroll Obligations

While sole proprietors do not pay themselves traditional wages, they may hire employees who require payroll processing. This includes setting up tax IDs, withholding income taxes, contributing to Social Security and Medicare, and filing employment tax returns.

Sole Proprietorship vs. LLC

Unlike LLCs, sole proprietorships offer no legal separation between personal and business liabilities. However, they provide flexibility, ease of formation, and simplified tax filing. Payroll compliance for sole proprietorships requires close attention to employment tax obligations and labor law adherence.