How Many Owners Does a Sole Proprietorship Have?

Key Takeaways

• A sole proprietorship can only have one owner because the business and individual are legally the same.
• Sole proprietors may operate under their personal name or a “Doing Business As” (DBA) name.
• Unlike corporations, proprietorships cannot issue stock or bring in shareholders.
• While only one owner is allowed, a sole proprietor may still hire employees or independent contractors.
• Proprietorships offer simplicity and control, but also expose the owner to unlimited personal liability.
• To expand or bring in co-owners, the business must be restructured as a partnership, LLC, or corporation.

How many owners does a proprietorship have? A proprietorship can legally have only one owner. That's because the business serves as part of the business owner's personal identity and vice versa. If a proprietor wants to expand their business and accept new partners and investors, they would have to restructure the company and incorporate it.

What Is a Proprietorship?

A (sole) proprietorship is a business entity that is owned and operated by one person. Sole proprietorships are the easiest types of businesses to start up because they exist automatically when the operator of that business decides to work as their own boss and offer a product or service.

More likely than not, a proprietorship bears the name of the owner, but the proprietor can operate their business under a fictitious name. This fictitious name is also called a "Doing business as," or DBA. To legally use a DBA, the proprietor has to file the DBA with the county in which they will run the business.

Key Features of Sole Proprietorship Ownership

A sole proprietorship legally allows just one owner, who has complete authority over all business decisions. This single-owner structure is why people often ask, “how many owners does a sole proprietorship have?” The answer is always one.

However, the owner may:

• Operate under their legal name or register a DBA (Doing Business As) name to market the business more effectively.
• Run multiple sole proprietorships, each under different DBAs, so long as they remain the sole owner.
• Hire employees or independent contractors, but this does not change ownership since workers do not acquire legal rights in the business.

This arrangement gives the proprietor flexibility but reinforces that ownership cannot be shared without restructuring the business.

How Does a Proprietorship Differ From a Corporation, in Terms of Ownership?

The key differences between a proprietorship and a corporation stem from the number of owners each business can have and the type of investment people can make in the company.

• Proprietorships can legally have only one owner.
• Unlike proprietorships, corporations can have multiple owners, and each of those owners holds shares in the business. By law, corporations are to be set up so their ownership can be shared.
• When corporations are publicly traded, they can raise extra funds by selling more stock. A sole proprietor may receive outside funds, but he or she is not allowed to partner with other businesspersons or attract investors by offering stock.

Not all businesses can have shareholders or stockholders. Most people don't realize this because corporations are so common, they grab most of the headlines, and people often hear about the stock market. It may seem like any company can have shareholders, but that is not the case.

Risks and Liabilities for Sole Owners

Because the business and owner are considered the same legal entity, all debts and obligations fall directly on the proprietor. This means:

• Unlimited personal liability: If the business cannot pay debts, creditors may pursue the owner’s personal assets, such as savings accounts or property.
• No separation of taxes: Business income and expenses flow directly onto the owner’s personal tax return. While this simplifies tax filing, it also ties the individual closely to business outcomes.
• Difficulties raising capital: Since proprietorships cannot issue stock or shares, owners rely on personal funds, loans, or family and friends to grow.

These risks are key factors to consider when deciding whether to remain a sole proprietor or restructure into another entity type.

How Can Someone Invest in a Sole Proprietorship?

While no one may buy shares of a sole proprietorship, they can still invest in it by doing one or more of the following:

• Providing direct donations. In many cases, the sole proprietors will ask for startup funds from friends and family.
• Providing low-interest loans to the sole proprietor. The business owner might also get low-interest loans from banks.
• Contributing to a crowdfunding campaign. Sole proprietors might seek help from total strangers by using websites such as GoFundMe, IndieGoGo, Kickstarter, MicroVenture, and Patreon. Most of those websites allow the campaign owner to give gifts (like a finished product) to donors.
• Becoming a partner. This will change the structure and legal status of the business, but a partnership doesn't need to be incorporated. A partner will have some control over the business and share in half of the profits. However, partners risk losing their investment if the business fails.

How Can Someone Convert a Proprietorship Into a Corporation?

If the proprietor wants to convert a proprietorship into a corporation, they will have to restructure the business. Basically, the business owner must do the following:

• File Articles of Incorporation in the state where the business will be located.
• List the number of shares the corporation is authorized to sell in the Articles of Incorporation.
• After the corporation is approved, the sole proprietor must move the assets used for the sole proprietorship to the corporation in exchange for shares in the new company.
• Sell some of those shares to new business partners, who will thus be shareholders in the new company.

Alternatives to Sole Proprietorship Ownership

While a sole proprietorship has only one owner, entrepreneurs sometimes outgrow this model and consider alternatives:

• Partnership: Allows two or more people to co-own a business. Each partner shares profits, losses, and liability.
• Limited Liability Company (LLC): Offers liability protection for owners while maintaining flexible management.
• Corporation: Provides the most formal structure, separates ownership through shares, and allows unlimited owners.

These structures not only permit multiple owners but also provide additional ways to raise funds and protect personal assets. Transitioning from a sole proprietorship to one of these entities is common when a business begins to scale or when outside investment is necessary.

Can a Proprietor Transfer Their Business?

While an owner of a proprietorship cannot sell stock in the business, he or she can sell the entire business to someone else. The proprietor may need to include some assets connected to the business as part of the sale, including:

• Physical assets
• List of customers
• The name of the business
• Intangible assets, which are known as the blue sky value or goodwill

In order to make the sale a reality, the proprietor and the seller have to agree on a price and the proprietor needs to issue a bill of sale. In addition, the proprietor may have to legally transfer some items.

Frequently Asked Questions

1. How many owners does a sole proprietorship have?
   Only one. A sole proprietorship cannot legally have multiple owners.
2. Can a sole proprietor have employees?
   Yes. While ownership is limited to one person, sole proprietors can hire employees or independent contractors to support business operations.
3. Can a sole proprietor run multiple businesses?
   Yes. A sole proprietor can operate several businesses, often by registering multiple DBAs, as long as they remain the sole owner of each.
4. What happens if a sole proprietor wants a business partner?
   The business must be restructured into a partnership, LLC, or corporation, since ownership cannot be shared under a sole proprietorship.
5. What are the risks of sole proprietorship ownership?
   The biggest risk is unlimited personal liability. Business debts and obligations are legally the owner’s responsibility.

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