When you start a small business, most likely you will do so as a “sole proprietorship.” If you don’t choose some other structure, and register it with your state, this one is the default. It means just what it sounds like—one business owner.

Other options for structuring your business include: general partnership, limited partnership, regular corporation, S corporation, professional corporation, non-profit corporation, limited liability company, professional limited liability corporation, and limited liability partnership. Each of these have varying costs, requirements and regulations. For more information on these business structures, see Nolo Business Ownership Structure.

While your state most likely has fees for business licenses, permits and such, there is no added cost to run a business as a sole proprietor. It is the most simple and least expensive way to structure a small business.

Taxes are relatively simple with sole proprietorship: you report all your business profits or losses on your personal federal tax return, (using Schedule C). Even if you file jointly with your spouse, you can still report your business income on the same return. You will have to pay “self-employment taxes” but again, that can be done on your joint or individual tax return. For more information on self employment tax, see the Social Security Administration’s Electronic Fact Sheet.

If your spouse regularly works in the business, check with your tax advisor about employment tax liabilities. If your spouse is a co-owner of the business, then sole proprietorship is no longer an option, and you should consult your attorney about the best structure for you.

The main disadvantage of sole proprietorship is that your personal assets are “at risk” for your business. What this means is that if your business borrows money and cannot repay the loan, your personal assets (bank accounts, property, etc.) can be used to satisfy the loan. Also, if your business is sued and you lose, your personal assets can be seized to satisfy the lawsuit. Legally, you and your business are one and the same. If you want to protect your personal assets, see your attorney about structuring your business in a different format.