Chapter 22 - Sole Proprietorships and Business Formation Issues in General

Question 1

Sole Proprietorship

Answer 1

• Not a separate entity

Question 2

Formation

Answer 2

1. No formal documents to file
2. Do need a business license if have a place of business in the city.
3. Sales Tax license (if selling stuff)

Question 3

Management and Operation

Answer 3

• Sole proprietor is in charge of everything.

Question 4

Taxation

Answer 4

• Whatever the business earns will be directly reported on the schedule c of 1040 on owner’s own income tax return.

Question 5

Owner Liability

Answer 5

• Owner is liable for debts of the business

Question 6

Bank of America v. Barr

Answer 6

• Barr stopped paying on loan for stonescone business.
• She was a sole proprietorship but later defaulted to LLC.
• She had to pay the loan back because she got loan as a sole proprietorship.

Question 7

Common to all businesses

Answer 7

1. Business License2.
2. FEIN - get online through IRS (sole proprietorships use social, good to open bank for the business)
3. Hiring Employees
4. Obtaining Capital through DEBT or EQUITY