Sole Proprietorship Facts & Statistics for 2023

What percentage of United States businesses are Sole Proprietorships?

According to the 2020 US Census from 2020, there were 826,915 Sole Proprietorship type business establishments in the United States. Compare this to the total 8,000,178 Business establishments in the US.

Based on this, 10.34% of US Businesses are Sole Proprietorships.

Source: Census Table-CB2000CBP Dataset-CBP2020 Data Released-May 26, 2022

What are the Largest Sole Proprietorships in the world?

Believe it or not, the Largest Sole Proprietorship in the world simply wouldn’t exist.

Unfortunately, Sole Proprietors don’t receive any Limited Personal Liability Protections. This single factor means anybody with a significantly sized Sole Proprietorship would surely upgrade their Business type to a Single-Member LLC or Corporate variation as soon as humanly possible.

Without any liability protections, any massively successful sole proprietor would be out of their mind to NOT convert their business to one which provides the peace of mind of Limited Personal Liability Protections, the savings of tax breaks, and the option to expand and add Owners and Investors.

Sole Proprietorship Tax Return Statistics from 2019, 2018, 2017, 2016, and 2015

Nonfarm Sole Proprietorship Statistics

Year Profitable Businesses Only All Businesses
Number of Tax Returns Net Income Number of Tax Returns Net Income Less Deficit
2019 20,068,698 $443,311,370,000 27,817,189 $355,177,264,000
2018 19,634,588 $429,990,931,000 27,117,163 $348,509,654,000
2017 19,434,121 $415,788,805,000 26,426,406 $346,241,776,000
2016 18,959,230 $389,138,987,000 25,525,915 $328,209,453,000
2015 18,784,750 $392,114,132,000 25,226,245 $331,832,538,000

Sources: IRS, Statistics of Income Division, Sole Proprietorship Returns 2019, November 2021. IRS, Statistics of Income Division, Sole Proprietorship Returns 2018, September 2020. IRS, Statistics of Income Division, Sole Proprietorship Returns 2017, September 2019. IRS, Statistics of Income Division, Sole Proprietorship Returns 2016, August 2018. IRS, Statistics of Income Division, Sole Proprietorship Returns 2015, July 2017.

The 5 Strengths and Advantages of a Sole Proprietorship

  1. There’s no paperwork or State registration hoops to jump through
  2. Simplest and fastest business entity to set up
  3. You have total control over every facet of the business
  4. Dissolving the business is effortless
  5. The easiest taxation model: The Pass-Though Process

As the simplest business entity to both set up and operate, it is no wonder why so many people opt for Sole Proprietorships as opposed to going through the headache of registering a business with your state. Other, more complicated businesses (LLCs and Corporations) require a lot of upkeep and annual registration fees.

Honestly, the best part of a Sole Proprietorship is getting out of having to file stacks of paperwork and deal with government bureaucracy.

➤ MORE: Have a deeper look at the Sole Proprietorship's greatest attributes.

What is a major weakness of the Sole Proprietorship?

The main pitfall of starting a Sole Proprietorship is the limitations on what you can and cannot do.

For instance, it can be extremely difficult to secure funding as an unregistered, unrecognized business. To put it in modern tongue… you don’t have any clout while operating as a Sole Proprietor.

It’s also important to consider the amount of liability you take on as a Sole Proprietor. Any debts or liability falls directly on you. Like it out not, you are “solely” responsible for every aspect of your business. Banks can’t give you a business loan or business credit cards because, legally speaking, you don’t have a business. You are just making money under your name by providing goods and services. There is no entity and no liability protection.

➤ MORE: What else is wrong with being a Sole Proprietor?

What are 3 trade offs of running a Sole Proprietorship?

1. Protection

The single worst aspect of the Sole Proprietorship as a business entity is it’s complete lack of liability protection. In a nutshell, this means sole proprietors have to stick with low- or no-risk businesses. If something goes wrong and the business gets sued or owes money to creditors, the sole proprietor is liable to pay out of pocket for all legal and business fees.

Not only does this personally affect the owner of the business, it also has a massive impact on their ability to secure funding. If a Sole Proprietor wants to take out a loan, they cannot go to the bank and take out a business loan, they have to take out a personal loan. If the Sole Proprietor decides to try and find private investors, they simply won’t risk more capital than what the sole proprietor is worth.

Due to their lack of protection Sole Proprietors are heavily restricted to what they sell and how they go about getting their business up and running.

2. Tax Options

If you are looking for a variable taxation structure to fit your business needs, stay away from the Sole Proprietorship. You would be better off setting up an LLC, S-Corp, C-Corp, or Corporation.

Sole Proprietorships have one standardized tax setup: The Pass-Through Process. With this setup all of the business’s profits are automatically “passed” on to the owner’s personal account. Any profits (or losses) coming from the Sole Proprietorship are declared on the 1040-SC Form. This is attached to the federal tax return and you’re good to go.

With a Sole Proprietorship you are paying Self-Employment tax in addiction to the usual federal, state, and local income taxes based on where you live. Self-Employment tax is the IRS’s fancy name for when they combine Social Security and Medicare taxes.

The main difference between this standardized process and those of LLCs, S-Corps, C-Corps, and Corporations is these more complex business entities provide you the ability to split and mix these taxes in different ways. These state-registered entities allow for tax optimization but with the simplified Sole Proprietorship you are stuck with the default tax structure.

3. Management Options

In a Sole Proprietorship you lose the ability to structure the business how you want. You don’t have a choice on whether you want to be actively or passively involved in the business like you could with an LLC or Corporation.

The more complex businesses give you the option to be more hands-on and involved in the day-to-day decision making in the company. They provide you the ability to be totally hands-off and hire a management team to do all the nitty-gritty work for you. You would still be involved in all major company decisions either way. Having a management team allows you to take a step back and focus on the big picture vision instead of losing sight and getting distracted with all the little things which inevitably come up.

This is not the case in a Sole Proprietorship. In stead of getting the chance to be hands-off, you have to be all hands on deck. Sole Proprietorships only exist if the owner, the sole proprietor, is actively managing and operating the business themselves. Sole proprietors can hire employees if they want, but the owner have to be a part of all decisions, both short- and long-term.

➤ MORE: Why are LLCs so popular?

How long does a Sole Proprietorship last?

Sole Proprietorships last until one of three events occur…

1. The owner dies,

2. The sole proprietor stops providing whatever products or services they sell or,

3. The owner has the option of selling the components of the business like their tools, inventory, or equipment and is therefore unable to continue business operations.

Being that the Sole Proprietorship is the simplest business entity, it is completely reliant on the owner and their ability to keep their business up and running. As soon as the owner dies or stops doing business, the Sole Proprietorship dissolves.

What is the richest privately owned company?

Although Sole Proprietorships are known to be better for side-hustles and small, low-risk operations some can get quite big before the owner decides to register it as an LLC or get the stamp of approval from the state and turn it into a Corporation.

With that being said…

Cargill is the biggest privately owned corporation in America coming in at an annual revenue of $165 Billion, according to their 2022 Annual Report. This food production giant was started way back in 1865 and currently employees 155,000 workers worldwide.

Based on their wikipedia page, Cargill brought in a net profit of $4.93 Billion in 2021, after material costs and taxes. Being a private company, Cargill restricts access to their financial reports. Here is what they’ve released so far:

Cargill’s annual revenue compared to their annual profits between 2010 and 2021

Source: Statista

What are 5 characteristics of a Sole Proprietorship?

1. Single Owner Business

Sole Proprietorships are limited to one owner who doubles as the main operator.

2. Business Assets are Personal Assets

This type of business doesn’t separate between the business and it’s owner. This goes for everything in the business including all profits and liability. Whatever the sole proprietor makes from the business is immediately catalogued as personal gains. If the business takes on any risk or liability in the form of debts, the responsibility falls completely on the owner to pay it back. The unfortunate reality is if the owner is unable to pay back loans from their business and it’s profits, the owner then has to pay out of pocket. This means the bank can come after the owner’s personal assets and property in order to repay what is owed.

3. Total Control

Since the owner is viewed as the business from a legal standpoint, they have full control over every aspect of the business. All decisions are made by the sole proprietor. However, this is a bit of a double edged sword. On the one hand the owner gets all the credit and praise when things are going well and business is booming. On the flip side, the owner is at fault should the business take any losses or make mistakes.

4. Informal Business Structure

As the simplest business entity, Sole Proprietorships are not registered with the state. All it takes to start one is to make money providing a service or product under your legal name. This gets you out of having to file paperwork with your local government and pay registration, filing fees, and annual maintenance costs. All of which have to be done when operating an LLC or Corporation.

5. Pass-Through Taxation

The money sole proprietors make is “passed-through” to their personal account. This streamlines the entire taxation process. All the owner has to do is account for any profits or losses on their personal income tax return. The only additional piece of paperwork one has to complete is the 1040-SC Form. Just attach this to the federal tax return you are probably already familiar with and complete every year.

How long do small businesses last?

The lifetime of a small business depends on many factors. Variables like the market, the state of the economy, and a business’s profit margins can all have a massive impact on the sustainability of a particular business. A company could also loose their customer base to a competitor or just die out because a newer or better version becomes available.

Most small business last until one of two events occur:

1. The small business ceases operation and closes it’s doors

2. The small business grows and expands to the point where it is no longer called a small business.

Let’s say you have a family owned auto repair shop and in comes a franchise location for a large corporate auto repair service. Unless your small business can beat their prices and perform repairs better than your corporate competitor, the odds are stacked against you. But…

Maybe you and your mechanics have developed some groundbreaking technique to clean oil or change brakes or install new spark plugs better than the mainstream approach. Your customer base could grow to the point where you begin expanding your business and opening up new locations.

Now your small business isn’t so small anymore.

What are 5 disadvantages of a Sole Proprietorship?

1. Sole proprietors are fully responsible for all aspects of their business. Total liability prevents owners from taking the risks necessary for some businesses to flourish.

2. As the simplest business entity, owners are limited to one taxation method: The Pass-Through Process. There are no tax breaks available for Sole Proprietorships like there are for LLCs and Corporations.

3. Without having to register with the state, Sole Proprietorships are generally viewed as inferior businesses compared to LLCs and Corporations. This makes finding investors and establishing yourself as a credible business much more difficult than if you had an LLC or Corporation.

4. You cannot set up a business bank account because Sole Proprietorships are technically viewed as unofficial business entities.

5. Although they are relatively easy to dissolve, selling a Sole Proprietorship is extremely difficult. You cannot sell the Sole Proprietorship as an entity because, from a legal point-of-view, its not a business entity. The only way to sell the business is to sell the individual components, materials, and anything else necessary to the manufacture of the products or the ability to provide the services you sell.

➤ DISCOVER: Why you should avoid Sole Proprietorships like the plague.

Do Sole Proprietorships have unlimited life?

No, Sole Proprietorship entities will end when one of the following events occur:

1. The owner, known as the sole proprietor, decides to sell the materials and equipment necessary for the business to operate.

2. The sole proprietor chooses to stop running the business.

3. The sole proprietor dies.

In a Sole Proprietorship the owner is legally viewed as the business itself. If the owner is no longer present or is unable to continue providing their services or selling their goods then the Sole Proprietorship simply dissolves.

Just as the Sole Proprietorship is nothing without a sole proprietor to manage and operate the business, so to the business isn’t a business if it’s not productive.