A proprietor is an owner, someone who has legal and exclusive ownership of something, and the word is used in particular for the owner of a sole proprietorship, who is then also called a sole proprietor. In a sole proprietorship there is no distinction between the business and the proprietor, who has full control and is entitled to all profits but is subject to unlimited liability for all losses, debts and liabilities of the business (Cornell Legal Information Institute, Wex). In US federal tax practice the word appears in that narrower sense: a sole proprietor is someone who owns an unincorporated business by themselves (IRS, Sole proprietorships). Either way the word names a person. The business form that person owns is the sole proprietorship.
Proprietor Versus Owner
Every proprietor is an owner, and the reverse does not hold. Holders of proprietary or ownership interests in a business entity are commonly known by specialized names such as stockholders, partners and proprietors, and by more general names such as investors, but all of them are owners (FASB Concepts Statement No. 8, Chapter 4, footnote 14). A shareholder owns and is not called a proprietor, because the narrower word names the owner of a sole proprietorship, the form in which one person owns all the assets, assumes all the debts, and is not distinguished from the business at all (Cornell Legal Information Institute, Wex). A shareholder holds an interest in a business entity instead.
Tax practice draws the line harder still. Someone who is the sole member of a domestic limited liability company and elects to treat that company as a corporation is not a sole proprietor (IRS, Sole proprietorships). Nothing about who owns the business changed when that election was made. Ownership is a fact about the person, while sole proprietor is a federal tax status that election can remove.
Where a Firm Meets the Word
In tax work it is a filing label, and it puts the business on the owner’s own return. Schedule C (Form 1040) is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor (IRS, Instructions for Schedule C (Form 1040)). Farming runs on its own schedule, since a sole proprietor whose principal source of income is farming activities files Schedule F instead (IRS, Instructions for Schedule C (Form 1040)).
The business behind that schedule files no income tax return of its own, a point covered under pass-through entities. Employment and excise returns are a separate matter, and a sole proprietor may still be liable to file those (IRS, Sole proprietorships). Carrying on the business also makes the owner self-employed, and the tax that follows is worked line by line in independent contractor.
In the accounts the word survives as a caption, since proprietorship is one of the names the equity of business entities goes by (FASB Concepts Statement No. 8, Chapter 4, footnote 14), so a set of books kept for a proprietor may label the residual that way rather than owner’s equity, where the rest of those names are set out.
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