14.1 - Sole Proprietorships

Question 1

What are 3 characteristics of sole proprietorships formation?

Answer 1

• Easiest
• Cheapest
• Formed by will of proprietor

Question 2

What is an advantage of forming a sole proprietorship?

Answer 2

• Can do business in any state without registering business

Question 3

How do you go about using a different name for business under a sole proprietorship?

Answer 3

• Using a fictitious name requires filing a “DBA” doing business as, under state law

Question 4

Identify 2 disadvantages of a sole proprietorship when related to capitalization

Answer 4

• Cannot raise equity capital
• Limited to resources of the proprietor

Question 5

How are profits and losses of a sole proprietor allcoated?

Answer 5

• Proprietor directly receives all profits

Question 6

What is the level of protection against personal liability for sole proprietors?

Answer 6

None -

• Subject to unlimited personal liability for all debts / losses

Question 7

Identify 3 tax benefits of having a sole proprietorship

Answer 7

• Income / loss of business reported on individual proprietor’s return
• Only need to file one return
• Avoids double taxation

Question 8

What powers (3) do a sole proprietor possess?

Answer 8

• Makes all management decisions
• Complete control and accountability
• Disadvantage from lack of expertise and checks / balances

Question 9

How is a sole proprietorship terminated?

Answer 9

• Duration of entity is at proprietor’s discretion
• Interest may be transferred, but sole proprietorship is dissolved