Understanding Business and Personal Law Sole Proprietorship Section 27.1 Sole Proprietorship and Partnership A sole proprietorship is a form of business

Understanding Business and Personal Law

Sole Proprietorship Sole Proprietorship Section 27.1Section 27.1

Sole Proprietorship and Partnership

A A sole proprietorship sole proprietorship is a form of is a form of business that is owned and operated business that is owned and operated by one person. However, that owner by one person. However, that owner may have any number of agents or may have any number of agents or employees.employees.

Creation and Operation Creation and Operation of a Sole Proprietorship of a Sole Proprietorship




A sole proprietorship is the most A sole proprietorship is the most common type of business and the common type of business and the easiest to form. Examples include:easiest to form. Examples include:


repair shopsrepair shopssmall retail storessmall retail storesservice organizations service organizations




A person who goes into business as a A person who goes into business as a sole proprietor can choose to operate sole proprietor can choose to operate under his or her own name or can under his or her own name or can make up a name. make up a name.





If a sole proprietor uses anything but If a sole proprietor uses anything but his or her own name, the law calls the his or her own name, the law calls the made-up name a made-up name a fictitious namefictitious name..





In selecting a fictitious name, sole In selecting a fictitious name, sole proprietors must not choose a proprietors must not choose a company name already in use.company name already in use.





There usually are few formal There usually are few formal requirements in establishing a sole requirements in establishing a sole proprietorship. proprietorship.





Some may be required to haveSome may be required to have


licenses to legally operate as licenses to legally operate as businessesbusinessesoccupational licensesoccupational licensescertain types of liability insurancecertain types of liability insurance




Some states require a formal filing Some states require a formal filing when a sole proprietorship begins or if when a sole proprietorship begins or if the sole proprietorship chooses to use the sole proprietorship chooses to use a fictitious name.a fictitious name.





ease of creationease of creationtotal controltotal controlretention of profitsretention of profitsfreedom from excessive freedom from excessive governmental controlgovernmental controlone-time taxation of profitsone-time taxation of profits

Advantages of a Sole Advantages of a Sole Proprietorship Proprietorship




Ease of Creation Ease of Creation

A sole proprietorship is the easiest A sole proprietorship is the easiest form of business association to form. form of business association to form. To create a sole proprietorship, a To create a sole proprietorship, a person needs only to begin the person needs only to begin the operation of the business.operation of the business.




Ease of Creation Ease of Creation

When a sole proprietor decides to hire When a sole proprietor decides to hire workers, he or she will have to contact workers, he or she will have to contact the Internal Revenue Service to obtain the Internal Revenue Service to obtain an an employer identification numberemployer identification number, , which is assigned for income tax which is assigned for income tax purposes.purposes.




Total Control Total Control

In a sole proprietorship, while the sole In a sole proprietorship, while the sole proprietor is free to seek the advice of proprietor is free to seek the advice of experts, such as accountants, experts, such as accountants, attorneys, and financial planners, all attorneys, and financial planners, all decisions are up to the sole proprietor.decisions are up to the sole proprietor.




Retention of Profits Retention of Profits

Sole proprietors get to keep all of the Sole proprietors get to keep all of the profits that the firm makes. profits that the firm makes.

They must, of course, pay taxes on They must, of course, pay taxes on those profits.those profits.




Freedom from Excessive Freedom from Excessive Governmental Control Governmental Control

The regulations a sole proprietor must The regulations a sole proprietor must follow are much less cumbersome follow are much less cumbersome than the regulations required of other than the regulations required of other types of business ownership, such as types of business ownership, such as limited partners and corporations.limited partners and corporations.




One-Time Taxation of Profits One-Time Taxation of Profits

Sole proprietorships do not pay taxes Sole proprietorships do not pay taxes as a business. Rather, the individual as a business. Rather, the individual sole proprietor who owns the business sole proprietor who owns the business pays taxes based upon his or her pays taxes based upon his or her income, which includes any profits income, which includes any profits made by the business.made by the business.




Disadvantages Disadvantages of a Sole Proprietorship of a Sole Proprietorship

limited capitallimited capitalunlimited liabilityunlimited liabilitylimited human resourceslimited human resourceslimited lifetimelimited lifetime




Limited Capital Limited Capital

All money used to finance the All money used to finance the business must come from the business must come from the proprietor’s savings or income, or from proprietor’s savings or income, or from loans obtained by the proprietor.loans obtained by the proprietor.




Unlimited Liability Unlimited Liability

Unlimited liabilityUnlimited liability means that the means that the business owner is responsible for all business owner is responsible for all losses experienced by the business.losses experienced by the business.




Limited Human Resources Limited Human Resources

As the only person responsible for the As the only person responsible for the decisions that affect the business, a decisions that affect the business, a sole proprietor is subject to sole proprietor is subject to tremendous stress. Even if he or she tremendous stress. Even if he or she consults experts, the decision-making consults experts, the decision-making responsibility still falls upon the owner. responsibility still falls upon the owner.




Limited Lifetime Limited Lifetime

Unlike a corporation, which has Unlike a corporation, which has perpetual existence, a sole perpetual existence, a sole proprietorship lasts only as long as the proprietorship lasts only as long as the proprietor. When the proprietor dies or proprietor. When the proprietor dies or sells or closes the business, the sells or closes the business, the company no longer exists.company no longer exists.

Documents

Understanding Business and Personal Law Sole Proprietorship Section 27.1 Sole Proprietorship and Partnership A sole proprietorship is a form of business