THE IMPORTANCE OF FORMING A LEGAL ENTITY
Q. My business is a Sole Proprietorship. Is this classification significant?
For the most basic business, such as a hobby, this designation is fine. Unless you use dangerous equipment, sell a product, have high liability or hire employees. But keep in mind, a Sole Proprietorship is not a true legal entity. It does not provide personal liability protection, which means there is no separation between the business and the owner. If sued, your personal assets can be taken. As well, if business debts cannot be paid with business assets then your personal assets can be taken.
There is a large misconception in the business community that this entity form is acceptable due to the ease and low cost to form.