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AgribusinessLibrary

LESSON L060006: SOLE PROPRIETORSHIPS

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Objectives

1. Describe characteristics of a sole

proprietorship.

2. List advantages of a sole proprietorship.

3. List disadvantages of a sole proprietorship.

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Key TermsBusiness entity

Sole proprietorship

Unlimited liability

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A sole propr ietorship is a

business entity with a

single owner/operator.

A business enti ty is aprofessional organization

offering something that

has real existence.

The following factors

characterize a sole

proprietorship.

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A. It is the oldest, mostcommon, and simplestform of businessorganization.

B. One person can serveas the business decision-maker.

C. No registration with the

state is required, as isnecessary with acorporation or a limitedliability company (LLC).

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D. It is easily set up and

maintained.

E. The owner is

personally responsiblefor assets, income taxes,

and business debts.

F. It is relatively simple

to manage and control.

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A sole proprietorship has several

advantages.

A. The owner is his or her own boss.

B. No legal formalities are involvedin forming or dissolving the business.

C. The money the business makes

belongs to the owner. D. Decisions can be made quickly.

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E. Start-up costs may be

minimal.

F. A sole proprietorship is a

good type of organizationfor a business:

1. That will remain small

2. That does not have great

exposure to liability

3. That does not justify the

expenses of incorporating and

ongoing corporate formalities.

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A sole proprietorship has

several disadvantages.

A. Raising capital to start the

business is difficult. 1. Banks are less willing to

lend money to one person

for a business venture.

2. Banks that approve loans

may have higher interest

rates.

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B. The owner has unlimitedliability.

Both the business and personalassets of the sole proprietor are

subject to the claims ofcreditors.

When the owner assumesunl imi ted liabil ity, he or she

may lose all personal andbusiness assets to pay bills ormoney owed to other parties.

C. The business ends if theowner dies.

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D. This owner is responsible for

the entire business.

E. The owner is responsible for

personal health insurance. F. The owner is responsible for

withholding and paying all

income taxes.

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G. The sole proprietor must

pay a self-employment tax,

which consists of

contributions to Social

Security and Medicare.

In addition, he or she must

pay estimated taxes

throughout the year.

H. The sole proprietor may

have to register the business

name and pay local taxes

for owning a business.

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REVIEWWhat are the characteristics of a sole

proprietorship?

What are some advantages of a sole

proprietorship?

What are some disadvantages of a sole

proprietorship?

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