Sole Proprietorships Flashcards
What document, if any, creates a sole proprietorship?
Formation of a sole proprietorship includes a minimal fee, straightforward filing requirement w/ state/county, & no annual filings.
If a sole proprietor wishes to operate under a name other than their own, they must file a “doing business as”, or DBA, w/ the state.
Who is in charge of managing a sole proprietorship?
Sole proprietorships are the easiest entities to maintain because they are owned by 1 person, the sole proprietor.
Are “big” & “small” decisions treated differently in a sole proprietorship?
The sole proprietor makes all decisions for their proprietorship.
Sole proprietorships have no oversight committees (board of directors) & do not require any agreements among principals.
The sole proprietorship may also be transformed into another entity at any time or terminated at the proprietor’s will.
Who may own a sole proprietorship? Are there any restrictions?
A sole proprietorship may be owned by an individual or a married couple.
Although a sole proprietor may sell the assets of their business to another party, the proprietor’s ownership interest in a sole proprietorship cannot pass to their heirs through a gift or an estate.
To what extent are owners liable for actions of a sole proprietorship?
In a sole proprietorship there are no protections of the principal’s personal assets for unpaid debts/liabilities.
Are some owners treated differently than others in a sole proprietorship?
There is only one owner in a sole proprietorship.
How do taxes work for sole proprietorships?
A sole proprietorship is not subject to corporate income taxation & no tax return is filed on behalf of the business.
Instead, the principal reports business income & expense on their own individual tax returns & pays taxes on business income based on their own individual tax rate.
For what types of businesses are sole proprietorships best?
Sole proprietorships are usually top choice for startup business w/ low annual revenues & expenses.
How can sole proprietorships capitalize?
Sole proprietorships are limited in their options for raising money.
1. Cannot sell ownership
2. May finance business through debt
a. private loans - interest rates fluctuate
b. commercial loans - fixed market rates (require
proprietors to secure loan w/ assets of
equivalent value)
c. commercial line of credit - only pay interest on
funds drawn instead of full amount of a loan
How are sole proprietorships organized in terms of employment and location?
Although most sole proprietorships are small in terms of assets & revenue, they are not limited in # of employees & locations.
True or false: A sole proprietor may sell the assets of their business to another party.
True: Yes, a sole proprietor may sell the assets of their business to another party; however, the proprietor’s ownership interest in a sole proprietorship cannot pass to their heirs through a gift or an estate.
