Sole Proprietorship is the most basic type of entity, and also the easiest to start. The only thing required is that you think about going into business. Right then, you are now operating as a sole proprietor and can go into business. Depending on where you live you may need to get business licenses or permits depending on what your business intends to do.
The downside to Sole Proprietorships is that they do not have limited liability. So if something goes wrong and you get sued, it is possible that everything that you own personally could (and probably would be) taken away from you if the lawsuit is won.
The upside to a Sole Proprietorship is that it is a ‘pass through’ entity, This means that any earnings that you have are only taxed once. The money that you make is not taxed to the business, but only to you once as your salary. Included with this is tax deductions. When you are spending for your business, that money may be a tax break if you document it and it is justifiable for your business.
If you don’t establish a separate entity type, then this is the default type that you will assume as an individual. As you can see, the limited liability is quite the potential time bomb, even more so as you become more affluent in your life.