The easiest business to start in the United States is a sole proprietorship, or a general partnership if two or more people are involved. Both exist automatically the moment you begin earning money from a product or service. No formation documents, no state registration, no filing fees. You become the business by operating it.1Legal Information Institute. Sole Proprietorship
Why a Sole Proprietorship Is the Simplest Structure
A sole proprietorship is an unincorporated business owned by one person, with no legal distinction between the owner and the business. If you mow lawns for cash, sell crafts online, or freelance as a graphic designer, you’re already running one whether you’ve thought about it that way or not.
The IRS treats your business income as your personal income. You report profit or loss on Schedule C with your individual tax return.2Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business Your Social Security number works as your tax ID unless you hire employees or operate under certain trust or retirement plan structures.3Internal Revenue Service. Sole Proprietorships There are no board meetings, no annual reports to the state, no corporate minutes. Administrative overhead at formation is essentially zero.
The Two-Person Version: General Partnership
When two or more people run a business together for profit, the law treats them as a general partnership by default. Under the Revised Uniform Partnership Act, adopted in some form by most states, a partnership forms automatically when people associate as co-owners of a business, regardless of whether they intended to create one or ever used the word “partnership.”4Legal Information Institute. General Partner An oral agreement, or even just conduct implying shared management and profit-sharing, is enough.
Two friends splitting work and revenue on a landscaping operation have a general partnership even if they never signed anything. Operating without a written agreement, though, invites trouble. When disputes arise over profit splits, decisions, or someone leaving, nothing in writing turns a business problem into a personal one. A sound partnership agreement covers profit and loss allocation, management responsibilities, dispute resolution, and buyout terms if a partner exits or dies.
The Catch: Unlimited Personal Liability
The reason these structures form so easily is also what makes them risky. There is no legal wall between you and the business. Every debt the business takes on is your personal debt. If a customer sues and wins, the judgment doesn’t stop at your business bank account; creditors can reach your home, your savings, and your personal property.
Partnerships make this worse. Each general partner carries unlimited personal liability not just for their own actions, but for the business-related actions of every other partner. If your partner signs a contract you never agreed to, or causes harm while conducting partnership business, you’re on the hook. A creditor can pursue any one partner for the full amount owed, leaving that partner to chase contributions from the others later.
Taxes Start Right Away
No employer is withholding anything from your income, so you handle the full tax picture yourself. New owners often get caught off guard by this in the first year.
Self-Employment Tax
Every sole proprietor and general partner owes self-employment tax on net business earnings. The rate is 15.3%, covering Social Security (12.4%) and Medicare (2.9%).5Internal Revenue Service. Topic No. 554, Self-Employment Tax An employee splits that with an employer; working for yourself, you pay both halves. The Social Security portion applies only to the first $184,500 in net earnings for 2026, and Medicare has no cap.6Social Security Administration. Contribution and Benefit Base You can deduct half of your self-employment tax when calculating adjusted gross income.
Income Tax and Quarterly Payments
Business profits flow through to your personal return. Sole proprietors use Schedule C. Partnerships file an informational return on Form 1065 and issue each partner a Schedule K-1 showing their share of income and deductions.7Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income The partnership itself pays no income tax; everything passes through to the partners.
Because nothing is withheld as you earn, the IRS expects quarterly estimated payments if you’ll owe $1,000 or more for the year after withholding and refundable credits.8Internal Revenue Service. 2026 Form 1040-ES, Estimated Tax for Individuals Due dates are April 15, June 15, September 15, and January 15 of the following year. Missing them triggers an underpayment penalty based on how much you owed and how long it went unpaid.9Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty A lot of first-year owners spend everything they bring in and then get hit with a bill they can’t cover.
What You Can Deduct
Legitimate business expenses reduce your taxable profit. Common ones include advertising, office supplies, business insurance, professional fees for accountants and attorneys, rent for business space, and the business portion of vehicle expenses. The 2026 IRS standard mileage rate for business driving is 72.5 cents per mile.10Internal Revenue Service. 2026 Standard Mileage Rates Contract labor, travel, and business meals (generally at 50% of actual cost) are also deductible.11Internal Revenue Service. Instructions for Schedule C (Form 1040) Keep receipts and records for at least three years from the date you file the return.12Internal Revenue Service. How Long Should I Keep Records
What You Still Have to Set Up
No formation filings doesn’t mean nothing to do. A few practical steps make the business functional.
A Business Name
If you plan to operate under anything other than your legal name (or your partners’ legal names), you’ll need to register a “Doing Business As” name, often called a DBA or fictitious business name. This usually means a short form filed with the county clerk and a modest fee, typically $10 to $100, though it can run higher depending on jurisdiction. Some areas also require you to publish the name in a local newspaper. Many jurisdictions require renewal every five years.
An EIN, If You Need One
An EIN is a nine-digit number the IRS assigns for tax filing and reporting. Sole proprietors with no employees can often skip it and use their Social Security number.3Internal Revenue Service. Sole Proprietorships You’ll need one if you hire employees, operate as a partnership, or want to open a business bank account, which most banks require.13Internal Revenue Service. Get an Employer Identification Number The application is free and takes about five minutes through the IRS online portal, which issues the number immediately.14Internal Revenue Service. Employer Identification Number
Licenses and Permits
Depending on what you do and where you operate, you may need local, state, or federal licenses. Many municipalities require a general business license or occupational permit, with fees and processing times varying widely. A handful of industries also require federal licensing regardless of structure, including alcohol, firearms, commercial aviation, broadcasting, commercial fishing, maritime transport, and nuclear energy.15U.S. Small Business Administration. Apply for Licenses and Permits Most small service businesses won’t hit those requirements, but check before spending money on equipment or inventory.
A Separate Bank Account
Sole proprietors aren’t legally required to open a dedicated business bank account, but skipping this is one of the more common early mistakes. When personal and business transactions run through the same account, tracking deductible expenses at tax time becomes a mess, and muddled records are the kind of thing that invites audits. Open a business checking account, use a business card for business purchases, and document any transfers between personal and business accounts. For partners, this isn’t optional in any practical sense: without separation, allocating income and expenses accurately is nearly impossible, and disputes over who spent what are almost guaranteed.
When to Skip the Easy Route and Form an LLC
Sole proprietorships and general partnerships win on simplicity and lose badly on liability protection. If your business carries any meaningful lawsuit risk, meaning you work with clients in person, sell physical products, or give professional advice, an LLC is worth considering. Forming one takes an afternoon: articles of organization filed with your state and a fee, typically $50 to $500. Some states also charge annual fees or franchise taxes.
The payoff is a legal barrier between your personal assets and business liabilities. If the business is sued or can’t pay its debts, creditors generally can’t reach your personal bank account or home. A single-member LLC is still taxed exactly like a sole proprietorship by default, with the same Schedule C and the same self-employment tax, so the tax picture doesn’t change. For many owners, that afternoon of paperwork buys protection a sole proprietorship simply can’t offer.