How do sole proprietorships differ from corporations?

Sole proprietorships are distinct from corporations primarily in their ownership structure and legal status. A sole proprietorship is owned and operated by a single individual, making it the simplest form of business entity. This means that the owner has complete control over the business and is entitled to all profits but also bears all the risks and liabilities associated with the business.

In contrast, a corporation is recognized as a separate legal entity from its owners, which can include multiple individuals (shareholders). This separation provides the corporation with its distinct legal status, allowing it to own property, enter into contracts, and be liable for debts independently of its owners.

This significant difference in structure and legal recognition affects liability as well. Sole proprietorships do not provide limited liability protection, so the owner's personal assets are at risk in the event of business debts or legal issues. Corporations, however, generally provide limited liability to their shareholders, protecting their personal assets from business liabilities.

Understanding these fundamental differences aids in recognizing how ownership structures impact business operations, liability, and taxation.