A sole proprietorship is the default business form for an individual business owner, and it is the simplest and most common type of business. Though a sole proprietor may need to obtain licenses or permits for operating a business, there are generally no specific state filings or fees required to form a sole proprietorship. If a person starts running a business and does not pick another form, it will automatically be considered a sole proprietorship.

The benefits of a sole proprietorship include total operational control, avoidance of double taxation (see the discussion of corporations below), and the lack of state filing requirements and corporate formalities. An owner is free to run the business as she pleases, and does not need the approval of investors or other stake holders. There is also no requirement to adhere to strick corporate formalities, such as annual meetings and separate bank accounts. Sole proprietors can also hire employees and contractors without changing the business form, as long as the owner does not try to disclaim responsibility for the actions of the employee. Generally, a solo proprietorship can be established without much time or legal expense, and in reality, they are often established without the owner even realizing it. A business owner just needs to pick a product or service to offer, and begin running the business.

The major drawback of a sole proprietorship is that the business owner is personally liable for all monetary and legal claims against the business. There is no legal barrier between the business and its owner. This means that if the business owes money for any reason, the creditor can come after the personal assets of the owner. Likewise, if the business gets sued for a tort or breach of contract, the business owner's home, savings and other assets can all be attached to the judgement. In addition, because the assets and liabilities of the business are the same as those of the owner, it can be hard for sole proprietorships to find investors, because people do not want to take the risks. Because of the potential personal liability of the owner of a sole proprietorship, with the many other options available to business owners, this option is often avoided in favor of other arrangements.