Entities
Sole proprietorship
A sole proprietorship is an unincorporated business owned by one person. No formation filing is required and no legal separation exists between the owner and the business, so the owner is personally liable for all business debts. Income is reported on the owner's personal tax return.
In plain terms: Working for yourself with no company around you. Everything the business owes, you owe.
Why it matters
It is the default the moment you earn money without forming anything, and it is genuinely fine for testing an idea. The problems arrive with the first real contract, the first client dispute, or the first bank that wants to open a business account and finds there is no business to open one for.
Common misunderstanding
Assuming a business name or an EIN creates separation. Neither does. Only forming an entity does.
Read the full guideStarting a US businessRelated terms
Source: IRS — Sole proprietorships. This is a definition, not tax or legal advice — verify against the primary source before acting.