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Sole Proprietor: The Person Is the Business

February 5, 2026

Understand sole proprietorships—businesses where there's no legal separation between owner and business, and the unique KYB challenges they present.

A sole proprietor is an individual who owns and operates a business without forming a separate legal entity. The person and the business are legally identical—there's no corporation, LLC, or partnership structure creating separation.

Sole Proprietorships Are Everywhere

Scale

  • Approximately 23 million sole proprietorships in the US
  • Represent 73% of all US businesses
  • Account for only 4% of business revenue
  • Most common structure for micro-businesses

Common Types

  • Freelancers and consultants
  • Independent contractors
  • Small retail shops
  • Personal service providers (tutors, photographers, cleaners)
  • Gig economy workers
  • Side businesses

What Makes Sole Proprietors Different

Liability

  • Sole Proprietor: Personal assets at risk
  • LLC/Corporation: Limited to business assets

Taxation

  • Sole Proprietor: Personal tax return (Schedule C)
  • LLC/Corporation: Separate entity taxation

State registration

  • Sole Proprietor: Not required (just licenses)
  • LLC/Corporation: Required filings

Existence

  • Sole Proprietor: Tied to individual
  • LLC/Corporation: Perpetual

Identity = Owner Identity

The business is the person:

  • Business debts are personal debts
  • Business lawsuits are personal lawsuits
  • Business income is personal income
  • Business credit is personal credit

Operating Names

Sole proprietors often operate under trade names:

  • "John Smith" does business as "Smith's Consulting"
  • Requires DBA (Doing Business As) registration
  • Creates appearance of formal business
  • Trade name ≠ legal entity—owner remains personally liable

The KYB Challenge

No State Registry

Unlike corporations and LLCs, sole proprietorships don't file with the Secretary of State. There's no central record of:

  • When the business started
  • Who operates it
  • Whether it's still active
  • What it does

Verification Complexity

Verifying a sole proprietor requires different approaches:

What doesn't exist:

  • Corporate registration
  • EIN (may use SSN instead)
  • Annual reports
  • Registered agent

What might exist:

  • DBA registration (county or state)
  • Business licenses (local)
  • Tax records
  • Professional licenses
  • Web presence

Identity Verification Overlap

KYB for sole proprietors resembles KYC (Know Your Customer):

  • Verify the individual's identity
  • Confirm they operate the claimed business
  • Check for licenses if required
  • Assess individual creditworthiness/risk

The business verification is the person verification.

Data Challenges

Finding Sole Proprietors

Sole proprietors are harder to discover and verify:

Secretary of State: No

Business registries: Sometimes (DBAs)

Tax data: Yes (but private)

Web presence: Inconsistently

Professional licenses: Some industries

Payment data: Yes (with limitations)

The Trade Name Problem

A sole proprietor filing says:

Business Name: "Green Thumb Gardening"
Owner: John Smith

But without Secretary of State records, connecting "Green Thumb Gardening" to a real person requires:

  • DBA records (where filed)
  • License records
  • Web and social presence
  • Transaction patterns

Distinguishing from LLCs

A business calling itself "ABC Services" could be:

  • A sole proprietor operating under a DBA
  • An LLC with a trade name
  • A corporation with a fictitious name

Without formation records, determining the structure requires investigation.

Risk Considerations

Higher Risk Factors

Sole proprietorships may present elevated risk:

  • No liability shield means financial fragility
  • Business can vanish instantly if owner stops
  • Limited creditworthiness assessment options
  • Higher failure rates than incorporated businesses

Lower Risk Factors

They also have some advantages:

  • Clear accountability (one person responsible)
  • No complex ownership structures to unravel
  • Typically small transaction volumes
  • Owner reputation directly at stake

Industry Patterns

Risk varies significantly by industry:

  • Professional services (low risk) vs. cash-intensive businesses (higher risk)
  • Licensed professions have additional verification points
  • Service businesses vs. inventory-based businesses

Sole Proprietors in Compliance

Regulatory Treatment

Some regulations treat sole proprietors differently:

  • Corporate Transparency Act: Sole proprietors not organized as entities are exempt
  • BSA/AML: Still applies to financial activities
  • Industry regulations: May require licensing regardless of structure

Verification Approach

For sole proprietor KYB:

  1. Verify individual identity (KYC-style)
  2. Confirm business operation (licenses, DBA, web presence)
  3. Assess industry-specific requirements
  4. Check for professional credentials if applicable
  5. Evaluate based on individual and business signals combined

Key Takeaways

  • Sole proprietors have no legal entity separation—person and business are one
  • They represent the majority of US businesses but a small fraction of economic activity
  • No Secretary of State records exist—verification requires alternative data sources
  • KYB resembles KYC—verifying the business means verifying the individual
  • Trade names create complexity—connecting operating name to owner requires investigation
  • Risk assessment differs—consider both individual and business factors

Related: Legal Entity | Trade Name | Micro-Business | Entity Verification