Sole proprietorship is usually the most favored option for home-based businesses. It is a basic legal structure that gives a formal status to any business. These are easy to establish and taxes from the concern can be reported on your personal tax return.
Although establishing this type of entity is easy, getting financing for such a concern can be a bit difficult, and the liability of the proprietor is not limited to the business. Which means that any claims of creditors can be recovered from the proprietor's personal property i.e. it extends beyond the assets of the firm.
This is quite simple, however, instead of doing it yourself, get a tax consultant or lawyer to do it for you, it is not expensive. The following steps need to be taken:
As a sole proprietorship concern you can pretty much carry out all required business activities that you could with any other legal structure. the difference is that a sole proprietorship concern is with unlimited liability ie. the business is not a separate entity but all the debts, payable and liabilities extend to the personal assets of the firm whereas in case of private limited companies the liability is limited to the assets of the company which is in itself a separate entity or legal person. Liability of partnership firms is also unlimited same as sole proprietorship.