Can Sole Proprietorships Issue Bonds?

by Tiffany C. Wright

Sole proprietorships are not prohibited from issuing bonds. In practice, however, only large corporations and government institutions issue bonds. Bond issuance requires compliance with and adherence to a number of federal regulations. It also requires marketing and solicitation of a large number of potential investors and sufficient collateral to reasonably support principal repayment in the event of default. Few, if any, sole proprietorships can meet the requirements and cover the associated expenses.

Sole Proprietorship

A sole proprietorship includes anyone who sets up a business as a single individual. The owner of a sole proprietorship is called a sole proprietor. Because the business and its owner are legally one and the same, sole proprietors include business revenues and expenses on Schedule C of Form 1040, the personal tax return. Legally, all of the liabilities and debts a sole proprietorship incurs become the sole proprietor’s personal debts and obligations.


Bonds are debt securities that government entities and corporations issue to raise money. Government entities that issue bonds range from local municipalities to federal agencies. Both corporations and governments issue bonds to support new construction projects, retire existing debt or fund new initiatives. The entity issuing a bond is called the issuer. When an investor buys a bond, he lends money to the issuer at a stated interest rate. The issuer agrees to repay principal on a predetermined date. Until that maturity date, the issuer pays interest, typically on a semiannual basis. Bonds do not confer ownership. Instead, they confer a claim on the issuer's assets in the event it defaults on the bond.

Bond Issuance

Bond issuance is a very complicated and highly technical process. Issuing entities must comply with a number of federal regulations and state laws. Because of the compliance involved and the need to find buyers for the bonds and address any concerns that may arise, the issuing process can be lengthy and costly. Therefore, most issuers use specialists called investment bankers to issue the bonds for them. In addition, the issuing organization or its investment bank must underwrite, or guarantee, a certain level of bond sales or else the bond issue fails.


Because bond issuance can cost hundreds of thousands of dollars at a minimum, few sole proprietorships can afford it. In addition, the collateral the sole proprietorship owns must be sufficient to convince potential bond buyers that their principal will likely be repaid in the event of default. Therefore, a sole proprietor must potentially own or have access to millions of dollars in assets. If the company defaults and does not have enough to cover the claims by bondholders, the sole proprietor will be held personally responsible for those claims.


An alternative to issuing bonds directly is to participate in bond issuance programs offered by municipalities and counties. To promote job growth and redevelopment, some of these government entities issue bonds, then lend the proceeds to small- and medium-size businesses that meet certain criteria. However, many require that the companies they select be incorporated or organized as LLCs.

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