Sole Proprietorship
What you are the moment you make your first dollar: no paperwork, no protection, and eventually a reason to upgrade.
A sole proprietorship is the business structure you have by default. The moment you make money without forming a separate legal entity, you’re a sole proprietor. No paperwork, no state filing, no fees. The IRS considers you and your business to be the same person, which sounds convenient until it becomes the reason someone can take everything you own.
The Simplicity Is Real
There’s no formation process, no annual fees, no separate tax return. Every dollar your business earns flows directly onto your personal return as Schedule C income. That’s it. This is why most people start here, and it’s a legitimate reason. When you’re making your first $20,000 testing an idea, the overhead of a formal entity adds complexity before it adds protection. That simplicity is exactly what makes it the right place to begin.
The Part Nobody Mentions Up Front
There is no legal separation between you and your business. If a client sues you for breach of contract, if someone claims your content gave them bad advice and they lost money, if a product you sold caused harm, they’re not suing your business. They’re suing you. Your personal bank accounts, your car, your savings, your house if you own one. All of it is reachable.
Most women operating as sole proprietors don’t know this is their situation. They assume “I’m just a small business” functions as some kind of protection. It doesn’t. The legal exposure is personal from day one, whether you know it or not.
What Real Exposure Looks Like
A blogger running affiliate links and brand deals is a sole proprietor until she forms something else. If she publishes a review, recommends a product, and someone claims it caused them harm, the lawsuit comes directly to her. Not to a business entity. To her personally.
Compare that to a candle maker selling at farmers’ markets a few times a year. Revenue is modest, transactions are face-to-face, liability risk is low. A sole proprietorship probably makes sense. Now take the same maker who builds a Shopify store and starts shipping $50,000 a month to strangers across the country. The risk profile changed completely. The structure didn’t.
The question isn’t whether you need an LLC in the abstract. The question is whether your current structure matches your current exposure. Those two things get out of sync faster than most people expect.
Taxes
Sole proprietors pay self-employment tax at 15.3% on net earnings, on top of regular income tax. That covers Social Security (12.4%) and Medicare (2.9%). When you work for an employer, your employer covers half of that. As a sole proprietor, you cover all of it.
A sole proprietor with $80,000 in net profit will owe roughly $11,300 in self-employment tax before income tax is even calculated. This math is one of the main reasons profitable founders switch to an LLC with S-corp election. The S-corp election doesn’t eliminate the taxes, but it creates a structure that significantly reduces how much income is subject to them.
The DBA: Administrative, Not Protective
A “doing business as” name lets you operate under a brand name without forming an LLC. If your name is Maya Torres and you sell handmade ceramics under the name Salt + Clay Studio, filing a DBA makes that name official for banking and contracts in your state. It typically costs $10–100 depending on your state.
What it does not do is protect you. Salt + Clay Studio is still Maya Torres. If someone sues Salt + Clay Studio, they’re suing Maya Torres. The DBA is a naming registration, not a liability shield. Many women file a DBA thinking they’ve done the legal work. They haven’t.
When a Sole Proprietorship Makes Sense
If you’re in the early stages of testing an idea, a sole proprietorship is a reasonable starting point. The rough threshold most advisors use is under about $50,000 a year in revenue, combined with:
- Low liability risk (writing, digital products, simple services)
- No employees
- No major contracts with brands, retailers, or clients
Below that threshold, the cost of forming an LLC (filing fees run $50–500 depending on your state, plus annual fees in many states) may genuinely outweigh the protection. The calculation changes as you grow.
When to Upgrade
- Revenue crosses $50,000 and is trending up
- You’re selling physical products to people you’ve never met
- You’re signing contracts with brands, retailers, or clients
- You’re hiring employees or contractors
- You’re in any category that carries real liability risk: food, supplements, wellness content, physical goods shipped nationally
The rule of thumb: if losing a lawsuit would meaningfully change your financial life, the cost of forming an LLC is worth it. Formation fees are a one-time expense. Losing a judgment against your personal assets is not.
Making the Switch
Forming an LLC while already operating as a sole proprietor is straightforward:
- Search your state’s business registry to confirm your LLC name is available. Most states have an online search tool.
- File articles of organization with your state’s secretary of state office. You can do this online in most states. Filing fees run $50–500.
- Get an EIN from the IRS at irs.gov/ein. It’s free, takes about 10 minutes, and you’ll need it to open a business bank account.
- Open a dedicated business bank account. This is not optional. Mixing personal and business finances is the fastest way to lose the liability protection you just paid for. Courts can pierce the corporate veil and hold you personally liable if you’re treating the business account like a personal one.
- Update your contracts and invoices to reflect the LLC name instead of your personal name.
In most states, you can complete steps 1 through 3 in under an hour. The hard part isn’t the paperwork. It’s doing it before you need it, because the one version of this conversation you don’t want to have is the one that starts with “a lawsuit was filed against me yesterday.”
Sources
- IRS, “Sole Proprietorships,” 2025. Definition, Schedule C filing, and tax treatment.
- IRS, “Self-Employment Tax (Social Security and Medicare Taxes),” 2025. The 15.3% rate and how it’s calculated on net self-employment income.
- IRS, “S Corporations,” 2025. S-corp election and its effect on how income subject to self-employment tax is calculated.
- SBA, “Choose a Business Structure,” 2025. Comparison of sole proprietorship, LLC, and other structures.
- Nolo, “What Is a DBA (Doing Business As) Name?” 2024. DBA filing requirements, costs, and limitations.