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Questions and Answers
What is a major characteristic of a sole proprietorship?
What is a major characteristic of a sole proprietorship?
What is an advantage of a sole proprietorship?
What is an advantage of a sole proprietorship?
What is a disadvantage of a sole proprietorship?
What is a disadvantage of a sole proprietorship?
What type of business is often operated as a sole proprietorship?
What type of business is often operated as a sole proprietorship?
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Why is a sole proprietorship considered the simplest form of business ownership?
Why is a sole proprietorship considered the simplest form of business ownership?
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What is a benefit of a sole proprietorship in terms of taxes?
What is a benefit of a sole proprietorship in terms of taxes?
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What is a risk of a sole proprietorship?
What is a risk of a sole proprietorship?
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What type of business structure has limited growth potential?
What type of business structure has limited growth potential?
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Study Notes
Definition
- A sole proprietorship is a business owned and operated by one individual, also known as a sole trader.
- It is the simplest and most common form of business ownership.
Characteristics
- Unlimited liability: The owner's personal assets are not separate from the business, making them personally responsible for debts and obligations.
- Single ownership: The business is owned and controlled by one person.
- No separate legal entity: The business is not a separate legal entity from the owner.
- Easy to establish: Minimal legal and administrative requirements to start a sole proprietorship.
Advantages
- Easy to set up: Low startup costs and minimal paperwork.
- Flexibility: The owner has complete control and flexibility to make decisions.
- Tax benefits: Business income is reported on the owner's personal tax return.
- Minimal regulatory requirements: Fewer legal and regulatory requirements compared to other business structures.
Disadvantages
- Unlimited liability: The owner's personal assets are at risk in case of business debts or lawsuits.
- Limited access to capital: The business is dependent on the owner's personal financial resources.
- Limited growth potential: The business is limited by the owner's skills, expertise, and resources.
- Personal and business assets are not separated: The owner's personal assets are not protected from business creditors.
Examples and Applications
- Small businesses: Sole proprietorships are often used for small businesses, such as freelancers, consultants, and independent contractors.
- Service-based businesses: Businesses that provide services, such as hairdressers, lawyers, and doctors, may operate as sole proprietorships.
- Online businesses: Online businesses, such as bloggers, affiliate marketers, and e-commerce sellers, may operate as sole proprietorships.
Definition
- A sole proprietorship is a business owned and operated by one individual, also known as a sole trader.
Characteristics
- The owner's personal assets are not separate from the business, making them personally responsible for debts and obligations.
- The business is owned and controlled by one person.
- The business is not a separate legal entity from the owner.
- Minimal legal and administrative requirements to start a sole proprietorship.
Advantages
- Low startup costs and minimal paperwork are required to set up a sole proprietorship.
- The owner has complete control and flexibility to make decisions.
- Business income is reported on the owner's personal tax return, providing tax benefits.
- Fewer legal and regulatory requirements are needed compared to other business structures.
Disadvantages
- The owner's personal assets are at risk in case of business debts or lawsuits due to unlimited liability.
- The business is dependent on the owner's personal financial resources, limiting access to capital.
- The business is limited by the owner's skills, expertise, and resources, restricting growth potential.
- The owner's personal assets are not protected from business creditors, as they are not separated from the business.
Examples and Applications
- Sole proprietorships are often used for small businesses, such as freelancers, consultants, and independent contractors.
- Service-based businesses, such as hairdressers, lawyers, and doctors, may operate as sole proprietorships.
- Online businesses, such as bloggers, affiliate marketers, and e-commerce sellers, may operate as sole proprietorships.
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Description
Learn about the characteristics of a sole proprietorship, a business owned and operated by one individual. Understand the implications of unlimited liability and single ownership.
