Can Sole Proprietorships Have Multiple Owners?

By Jeffry Olson, J.D.

Can Sole Proprietorships Have Multiple Owners?

By Jeffry Olson, J.D.

A sole proprietorship is a form of business available in every state that usually does not require formal registration. If a person starts a business as an individual without any further legal steps, that business is a sole proprietorship. Because it is so easy to create, a sole proprietorship is one of the most common forms of business. This raises the question, can a sole proprietorship have multiple owners or is some other form of business more appropriate for multiple owners during business formation?

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Sole Proprietorships

As the name suggests, only one person owns a sole proprietorship. The business does not exist separately from the owner. For example, if the owner dies, the business no longer exists. And, unless the owner files a "doing business as" with the appropriate jurisdiction, the business operates under the legal name of the owner.

Because the business does not exist separately from the owner, any profits or losses from the business are taxed as personal income or loss to the owner. The owner of the sole proprietorship is also personally liable for any debts incurred by the business.

Most states do not require a business owner to register their sole proprietorship with the state. Still, it is often helpful to consult an attorney or an online legal services provider when starting a sole proprietorship.

Partnerships

If two or more individuals wish to form a business together, a partnership is often the appropriate form of business. Similar to a sole proprietorship, most states do not require a partnership to register or file formal documents with the state. Profits and losses are taxed to the owners of the partnership directly. Note that also like a sole proprietorship a partnership provides the owners with no liability protection. A partnership choosing to operate with a fictitious name files a "doing business as" with the appropriate jurisdiction.

Corporations and Limited Liability Companies

One or more individuals seeking to form a business that provides the owners with liability protection form a corporation or limited liability company (LLC). These forms of business require filing formal paperwork with the state. Unlike a sole proprietorship or partnership, corporations and LLCs are legal entities separate from their owners. In addition, both provide liability protection to owners. Corporations and LLCs are taxed as separate legal entities or profits and losses may be taxed to individual owners directly, depending on tax treatment elections made with the Internal Revenue Service (IRS).

Business Ownership

A sole proprietorship is a form of business with one owner. A partnership has two or more owners. If the owners of a business seek limited liability, they should consider either a corporation or an LLC. Corporations and LLCs are legal entities separate from the owners and require filing formal documents with the appropriate state agency that regulates businesses. They may file taxes as a separate business entity or pass profits and losses through to the owners, depending on their tax treatment elections made with the IRS. Owners creating a business should select their form of business carefully, considering the number of owners of the business, liability protection sought, and tax treatment desired.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.