Sole proprietorship is the simplest way of starting a business, requiring less paperwork and legal filings when both starting your business, and on an ongoing basis. However, with sole proprietorship, your business is legally indistinguishable from yourself, which means that your personal assets are at risk if you are liable for your business activities.
Sole proprietorship is usually preferred because it is simpler, requiring no legal filings to start the business. It is especially suitable if you're planning on starting a one-person business and you don't expect the business to grow beyond yourself. In some jurisdictions, you won't need to file any paperwork at all; just hang out your metaphorical shingle and get to work. So long as you report your business income on your personal income taxes, and follow the rules for making quarterly estimated tax payments, your business will be entirely above board.
Sole proprietorship also works best when your business is entirely self-financed – in other words, if you're starting yourself up with your own savings. Most business loans are not available to sole proprietorships, so if you need working capital, you're looking at a personal loan or credit cards to raise funds. This is exactly how many sole proprietorships get started, but high interest rates make this a very risky option. Self-financing is best done with money you've saved that you can afford to lose.
