Does a Sole Proprietorship Have a Board of Directors?
A sole proprietorship is owned and operated by a single individual. It does not have a board of directors because only one person — the owner — is ultimately responsible for making decisions and setting policies. A sole proprietor may choose to share decision-making with other stakeholders such as employees or family members, but she is not legally required to do so, and she is under no obligation to incorporate this input into the process of running her company.
Unlike a corporate structure such as a limited liability company or a C- or S-corporation, a sole proprietor only needs to fill out a simple business license application to create her business entity. In most states, a corporation is required to name its founding board of directors when the business is first established, but an entrepreneur founding a sole proprietorship only needs to provide the sole owner's name and contact information.
A sole proprietor who takes exclusive responsibility for the decision-making and financial management of his business encounters a higher level of risk and responsibility than a corporation governed by a board of directors. All of the owner's personal assets are at risk in the event of business failure, and the owner is personally liable for any debts or lawsuits the business faces.
The fact that a sole proprietorship does not need a board of directors enables a business owner who has chosen this organizational structure to make decisions efficiently and change course easily. This simplicity allows him to respond quickly to opportunities and threats, and to avoid cumbersome power struggles. The absence of a board of directors also minimizes the need for extraneous paperwork such as preparing the minutes from meetings. A sole proprietorship is the simplest business organization structure from a legal standpoint, and does not require the assistance of an attorney or the creation of by-laws.
Because a sole proprietorship has no board of directors, it faces the disadvantage of having decisions made by a lone individual whose knowledge and perspective may be limited. Other disadvantages of sole proprietorships include a lack of continuity as well as a lack of boundaries between individual and business assets. If a sole proprietorship's owner dies or is incapable of making decisions, the business cannot continue in its current form. In addition, banks will closely scrutinize the owner's personal assets if he applies for a business loan because the company's credit is inextricable from the owner's credit.