3.1 | Sole Proprietorship

A sole proprietorship is the simplest and most direct way to operate an agribusiness: the owner and the business are legally identical. No formal state charter is required beyond registering a trade name (“Doing Business As”) and obtaining a tax identification number. Tax filings are made on the owner’s personal return, and all profits and losses flow directly to the sole proprietor. Because legal and financial identities are combined, the owner bears unlimited personal liability for every business obligation, from seed loans to equipment leases.

In practice, many small farms, market gardens, and roadside produce stands begin as sole proprietorships. Minimal startup costs and reduced paperwork allow a farmer to pilot new crops or direct-to-consumer sales without complex compliance. As revenues grow or operational risks increase, lack of liability protection can expose personal assets to business claims. For instance, if irrigation equipment fails and causes flooding, the owner could be personally responsible for repair and liability costs.

Recommendations for Image:

• Figure 3.1.1: A farmer selling produce from a small roadside stand.
  • Alt text: Farmer handing a basket of tomatoes to a customer at a roadside stand.
  • Caption: Starting as a sole proprietorship allows many beginning agribusinesses to launch with minimal investment and direct customer engagement.

Real-World Example: In Arkansas, Maria Lopez established Lopez Family Organics as a sole proprietorship in 2018. She began by selling heirloom tomatoes and fresh herbs at local farmers’ markets. With initial savings of $2,000 for seeds and supplies, she operated from a 10-acre rented plot. After three seasons, revenues grew to $50,000 annually, but a tractor accident that damaged neighboring property resulted in a $30,000 liability. Because she had not formed a separate entity, Maria was personally liable for all costs, prompting her to restructure Lopez Family Organics into an LLC the following year.tion are essential to maint