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A sole proprietorship is another term for a sole trader business. A sole proprietorship refers to an unincorporated business with a single business owner who pays personal income tax on their earnings.
Being the simplest form of business ownership, most businesses will start as sole proprietorships—and many remain sole traders for the life of their business.
Sole proprietorships in Australia
In Australia, the term ‘sole proprietorship’ is not commonly used. In fact, you’ll find that the ATO will officially refer to a sole proprietor almost exclusively as a sole trader.
Other types of business structures in Australia include companies, partnerships, and trusts.
How do sole proprietorships work?
A sole proprietorship is the simplest form of business structure to operate and set up. With a basic structure and a singular owner, this type of business is one of the most popular ways to start up a small business, become a contractor, or a freelancer.
In a sole proprietorship, the business owner takes on all obligations, debts, and responsibilities, so is therefore personally liable for paying individual income taxes.
If a sole proprietor incurs debts, then the owner’s personal assets are at stake. On the other hand, a company is a separate legal entity.
See related terms
What is a ledger?
What is working capital?
What does accrued mean?
