A sole proprietorship is defined as a business or entity that is owned and operated by an individual. It is considered to be the simplest form of business ownership, which is its biggest advantage. There are no legal requirements to setting up a sole proprietorship beyond the customary permit, registration, and licensing requirements. All proceeds from the business are treated as personal income of the owner and are taxed accordingly.

A sole proprietorship has its disadvantages. In this form of ownership, there is unlimited liability. The debts and legal obligations of the business are the debts and legal obligations of the owner. So it is possible that an owner could lose all his or her personal assets to satisfy the obligations of the business. There is also the inability of the business to survive beyond the life of the owner. When the owner dies, transfer of the existing enterprise becomes a complicated process.

Access to capital is another limitation of a sole proprietorship, although there are a growing number of loan programs designed to accommodate the financial needs of an early venture entrepreneur.