The sole proprietorship is a very common form of small business, and beyond running their underlying business, sole proprietors are free to make investments and hold assets in investment accounts. These accounts can be used to augment savings for the business, to speculate on specific investment opportunities or to offset financial risks encountered in the sole proprietorship's business operations.
A sole proprietorship is a business activity operated under the name and legal responsibility of an individual owner. It does not involve any partners or shareholders, and generally can pursue the same type of business opportunities as other forms of business, including investments, trading and hedging activities.
Individual Assets & Income
All business and investment assets of a sole proprietorship are titled in the owner's name, and all business and investment income is the owner's personal income. This is unlike other forms of business, and is true even if the sole proprietorship decides to run the business under a trade name for marketing purposes.
Read More: Can an LLC Be an Individual or Sole Proprietor?
A sole proprietorship is not an independent business entity like a corporation or limited liability company. A corporation or LLC can take its profits and invest the money in its own business name separate from the owners as individuals. However, any business income that a sole proprietorship places into investments is made in the owner's personal name since the sole proprietorship is his alter ego.
Vulnerable to Creditors
Since the sole proprietor does not have the shield of a corporate entity to protect him from creditors, the owner's personal creditors can sue him to access his investment accounts and other assets set aside for the sole proprietorship to satisfy his personal debts. This can hurt the business's investment strategies and interrupt the underlying business if investment funds are needed to fund its operations.
- John Foxx/Stockbyte/Getty Images