A sole proprietorship is an unincorporated business owned by one person. The owner of a sole proprietorship is known as a sole proprietor. Sole proprietorship is easier and less expensive to start than corporations. It can be started without anything more formal than a decision or a handshake and you can conduct business under your own name or under a trade name. In this example, Owen will be the only owner and since he wants to have employees under this business form he is allowed to hire employees whereas if he was thinking of an S- Corporation he could not have any employees.
Running head: Business Law Rachel Lavender Western Governors University 2/21/11 PART A Sole Proprietorship A sole proprietorship is how most business entities begin. This type of business is owned and operated by one person. The main advantage of this type of business is that the owner does not need to get the approval of a partner or board in order to make decisions. A significant disadvantage is that, in a sole proprietorship, there is no separation from the business and personal assets, therefore, there is unlimited personal liability to the owner’s personal assets. · Liability-There is no difference between personal and business assets.
LIT1 Task 1 SOLE PROPRIETORSHIP: As the first word in the name suggests there is no distinction between the owner and the business, legally they are viewed as one entity. When it comes to starting a business this option is a perfect one because there is little to no start-up cost and autonomy since it is now your sole responsibility. The main disadvantage to this type of business is that financially the owner may find it hard to start up because any money that I loaned is a personal loan. • LIABILITY – The owner (proprietor) is liable for all debts and profits the business is and vice versa. The business and the owner are one entity so when the business owes on a debt the owner’s personal assets are liable to be taken as payment
The sole proprietor has the advantage of maintaining complete control over his or her business. Disadvantages: One of the greatest disadvantages to a sole proprietorship is the lack of cash flow or access to capital like loans or investors. They do not have the advantage of getting access to capital through bonds or shares and credit is based on their personal credit history. The lack of capital keeps purchase power restricted in comparison to corporations. Liabilities can be very heavy for sole proprietors depending on the nature of the business.
• Income Taxes – being a sole proprietor gives the individual the option to file taxes under a separate employer identification number. The other option is to file their return normally and just fill out an IRS Schedule C to show profit or loss for the business (Smith, 2011). • Longevity/Continuity – One of the main issues of longevity in regards to sole proprietorship is that it dissolves when the owner dies so it makes it not possible to have continuity (Joseph, 2011). • Control – one of the great advantages of sole proprietorship that a person doesn’t have with a partnership or corporation is that you don’t have to answer to anyone but yourself in our decisions. You have
Legal Forms of Business Law/531 November 7, 2011 Sole proprietorship This is the simplest form of business organization. A Sole proprietorship is a one person business, and the owner is the sole proprietor of the business. A Sole proprietorship is easy to establish and takes low cost to start, depending on the type of business. In this kind of business the sole proprietor owns and does all the management of the business and business
General partners, organized as a Partnership, are fully responsible for liabilities while Limited partners are not. Sole Proprietors are 100% responsible for the liabilities of the organization. The Rights, Responsibilities, and Legal Arrangement among Owners are also a significant part of the decision making process when deciding the type of organization to form. “State corporation laws specify the rights and responsibilities of corporations and their shareholders. Consequently, shareholders have no flexibility to alter their legal treatment with respect to one another, with respect to the corporation, and with respect to outsiders” (15-3).
Delaware Corporation Law Have you ever wonder why majority of the fortune 500 companies has chosen to incorporate their business in Delaware? Well it’s not because of taxes, although Delaware like every other state tries to keep its corporate tax rates low and competitive. There are a few advantages why companies decided to incorporate in Delaware, for instance; • As a state that welcomes corporations with open arms, Delaware provides such financial incentives for corporations as freedom from personal property tax, intangible property tax and even sales tax. A bigger incentive is the absence of a corporate income tax, provided the corporation is not doing business within the state. Furthermore, Delaware corporations pay
Prepare Post Closing Trial Balance Ratios 1. Debt ratio = Total liabilities Total assets Purpose: Show the ability of the company to repay its obligations when a company finances the purchase of assets using debt. A company with a low debt ratio will not have difficulty making the required payments. Generally a debt ratio below .60 is desirable. A ratio around .80 or 80% is considered high risk.
Each business organization has different tax, legal, and accounting implications, along with different financial responsibilities to the owners. A sole proprietorship is the simplest form of a business. One person owns and manages this type of business. This individual is responsible for all aspects of the business. With a sole proprietorship, the owner pays taxes on the income from the business as part of his or her personal income tax.