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What is sole proprietorship?

Businesses can be corporations, or they can be privately owned. The difference is who owns the business and who makes the profits. If a business wants to sell shares of stock, it has to be incorporated. This means it becomes an entity that is registered with the government. Corporations can own property, can go to court to sue or be sued, and they can make contracts. Owners of the corporation have shares of stock, and stocks can be bought and sold on the stock market. Corporations are controlled by laws that protect the shareholders and that control elements of the corporation's organization, even on the operative level. Corporations must have a board of directors, which is chosen by the shareholders every year. The board of directors is the company's decision and policy-making body. They are also responsible for hiring the executive officers.

A privately owned business does not buy or sell shares of stock. It does not have a board of directors that is given the responsibility of setting the company's policies and makes major decisions. If you invest your own money in your business, then you have what is known as sole proprietorship. There is only one owner, and not a group of owners. No one else makes the decisions and no one else makes the profits. Sometimes several people get together to open a business, and each one invests his own money. This is a partnership, and the responsibilities and profits in this case are shared. In both these cases, no shares are sold, and the businesses do not function as corporations. They do not have a federal tax ID number, and they are not governed by the same laws as corporations, which also have to answer to the other shareholders and the public.