A Brief Definition of Sole ProprietorshipsA sole proprietorship is owned and run by one individual who receives all profits and has unlimited responsibility for all losses and debts. Show
Learning Objectives Define a sole proprietorship Key TakeawaysKey Points
Key Terms
A sole proprietorship, also known as the sole trader or simply a proprietorship,
is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. Some formal definitions of a sole proprietorship are "a business owned by one person who is entitled to all of its profits " (Glos & Baker) and "a business owned and controlled by one man even though he may have many other persons working for him" (Reed & Conover).  Mom and pop store: This is a small proprietor with a small shop. A sole proprietor may use a trade name or
business name other than his or her legal name. In many jurisdictions, there are rules to enable the true owner of a business name to be ascertained. In the United States, there is generally a requirement to file a doing business as statement with the local authorities. In the United Kingdom, the proprietor's name must be displayed on business stationery, in business emails, and at business premises, and there are other requirements. Advantages of Sole ProprietorshipsThe advantages of a sole proprietorship versus other forms of organizations is the relative ease of set-up and the lower start-up costs. Learning Objectives Discuss the advantages of running a sole proprietorship Key TakeawaysKey Points
Key Terms
Advantages of Sole ProprietorshipThe sole proprietor form of business ownership is the most common form in the United States and also the simplest. In this form of business ownership, an individual proprietor owns the business, manages the business, and is responsible for all of the business' transactions and financial liabilities. This means that any debts incurred must be paid by the owner. This form of business has several advantages. A Writer's Office: A writer enjoying the advantages of being a sole proprietor. Quicker Tax PreparationAs a sole proprietor, filing your taxes is generally easier than a corporation. Simply file an individual income tax return (IRS Form 1040), including your business losses and profits. Your individual and business income are considered the same and self-employed tax implications will apply. Lower Start-up CostsLimited capital is a reality for many start-ups and small businesses. The costs of setting up and operating a corporation involves higher set-up fees and special forms. It's also not uncommon for a lawyer to be involved in forming a corporation. Ease of Money HandlingHandling money for the business is easier than other legal business structures. No payroll set-up is required to pay yourself. To make it even easier, set up a separate bank account to keep your business funds separate and avoid co-mingling personal and business activities. Government RegulationSole proprietorships also have the least government rules and regulations affecting it. They do need to comply with licensing requirements within the states in which they do business and they do need to pay attention to local regulations. However, the paperwork required is much less than large corporations. Thus, they can operate quite easily. Sole proprietorships also do not pay corporate taxes. Sale and Inheritance The sole proprietor can own the business for as long as he or she decides, and can cash in and sell the business when they decide to get out. The sole proprietor can even pass the business down to their heir, a common practice. Disadvantages of Sole ProprietorshipsSole proprietorships face a number of difficulties in the longer terms compared to limited liability companies. Learning Objectives List the disadvantages of sole proprietorships Key TakeawaysKey Points
Key Terms
Sole proprietorships are the smallest form of business organization, and
also the most common in the United States. However, while there are certain advantages (it is easier to set up a sole proprietorship than a limited liability company, for instance), there are a number of big disadvantages, particularly in the long term, that make the sole proprietorship model quite unattractive to business owners. Sole proprietorships have unlimited liability: A sole proprietor will be responsible for all the costs and debts of their company. Lack of financial controls: The looser structure of a
proprietorship won't require financial statements and maintaining company minutes as a corporation. The lack of accounting controls can result in the owner being lax about financial matters, perhaps falling behind in payments or not getting paid on time. It can be a serious issue if financial controls are not strictly managed. Licenses and AttributionsCC licensed content, Shared previously
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Which form of business organization is the easiest to start up?A sole proprietorship is easy to form and gives you complete control of your business. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business. Sole proprietorships do not produce a separate business entity.
What type of business is easy to start owner is own boss owner keeps all the profits and shoulders losses?A sole proprietorship is a business owned by only one person. Advantages include: complete control for the owner, easy and inexpensive to form, and owner gets to keep all of the profits.
In which type of business organization does one person take all the risks?Sole Proprietorship
The liabilities associated with the business are the personal liabilities of the owner, and the business terminates upon the proprietor's death. The proprietor undertakes the risks of the business to the extent of his/her assets, whether used in the business or personally owned.
Which organizational form has two or more owners who share the risks and the profits?Partnership. A partnership (or general partnership) is a business owned jointly by two or more people.
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Which form of organization that easy to start owner keeps all the profits and shoulders losses?
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