Sole proprietorship The most common form of business ownership is the sole proprietorship, sometimes called the individual proprietorship. This business is owned by one person. It is usually operated by the owner, possibly with the help of family members or a few employees. Sole proprietorships can usually operate with very limited capital resources. The sole proprietorship is the least complicated form of ownership and the easiest to enter and terminate. Entry requires little more than a location, expertise in the area of business considered, a source of capital, the ability to make contacts, and the desire to start your own business. Termination generally requires paying your debts and closing your doors. What does it mean legally? As a sole proprietor, your liability is limited to your own errors and obligations. But in case the business fails, your personal assets — including home, automobile, and other properties — are subject to claim by creditors. You can deal with the problem of unlimited personal liability to a certain extent by purchasing business liability insurance. However, as a sole proprietor you would still be personally liable for any business debts or loans because liability insurance only protects against claims arising from a business-related injury. As a sole proprietor, you must be all things to your business — or be willing to pay for professional help. You must be willing to work long hours, establish a record-keeping system, prepare tax reports, and hire and train personnel. As sole proprietor, you must arrange any financing your business needs as well as pay your creditors. All of these abilities are seldom possessed by one person. What about taxes? One main advantage of a sole proprietorship is its tax advantage. Your business is not a separate tax-paying or tax-reporting unit; it is treated as part of your overall financial activities. You should keep separate records of business income, deductions, inventories, and capital acquisitions. This profit or loss is combined with other personal income for tax purposes. As the personal income tax rate is often lower than the corporate one, taxes are generally lower for the sole proprietor. ADVANTAGES 1. Low start-up costs 2. Greatest freedom from regulation 3. Owner in direct control 4. Minimal working capital requirements 5. Tax advantage to small owner 6. All profits to owner DISADVANTAGES 1. Unlimited liability 2. Business ceases at death of owner 3. Difficulty in raising capital 2.Partnership Forming a partnership can be a challenge. Like a marriage, a partnership requires understanding, tact, and negotiation.
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- Spring '18
- Professor Obura Oluoch
- Business Law, Corporation, partner