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Questions and Answers
Explain the concept of business ownership known as sole proprietorship.
A sole proprietorship is owned by one person and operates for their benefit. The owner operates the business alone and may hire employees.
What is the difference between a corporation and a sole proprietorship in terms of liability?
Corporations provide limited liability for their owners/members, while sole proprietors are personally responsible and liable for debts incurred by the business.
What is the taxation system for businesses and corporates?
The proprietor of a business is personally taxed on all income from the business, while corporations are subject to corporate tax rates.
How do creditors treat the debts incurred by a business with a sole proprietorship?
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What are some common forms of business ownership?
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Study Notes
Business Ownership: Sole Proprietorship
- A sole proprietorship is a type of business ownership where one individual owns and operates the business.
- The business and the owner are not separate entities, and the owner has unlimited personal liability.
Liability: Corporation vs. Sole Proprietorship
- In a corporation, the owners (shareholders) have limited liability, meaning their personal assets are protected in case the business incurs debt or is sued.
- In a sole proprietorship, the owner has unlimited personal liability, meaning their personal assets can be seized to pay off business debts.
Taxation System for Businesses and Corporates
- Businesses and corporates are taxed differently, with corporations being taxed on their profits, while sole proprietors report business income on their personal tax returns.
- Sole proprietors are considered self-employed and pay self-employment taxes on their business income.
Creditor Treatment of Sole Proprietorship Debts
- Since the business and owner are not separate entities, creditors can pursue the owner's personal assets to collect debts incurred by the business.
- This means the owner's personal assets, such as their home or savings, can be used to pay off business debts.
Common Forms of Business Ownership
- Sole Proprietorship: one individual owns and operates the business.
- Partnership: two or more individuals own and operate the business together.
- Corporation: a separate legal entity from its owners, with limited liability for shareholders.
- Limited Liability Company (LLC): a hybrid of partnership and corporation, with limited liability for owners.
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Description
Test your knowledge of essential business concepts and practices with this quiz. Explore topics such as business ownership, liability, and taxation.
