Sole Proprietorship Characteristics

Questions and Answers

What is a sole proprietorship?

A partnership of several businesses

A corporation with shareholders

Owned by multiple people

Owned and managed by a single person (correct)

Who makes all decisions in a sole proprietorship?

The sole proprietor

Sole proprietors want to give orders rather than take them.

True

What do business tax deductions do for business owners?

Allow for favorable tax status Signup and view all the answers

What is the main financial risk of a sole proprietorship?

Unlimited liability Signup and view all the answers

How many sole proprietorships are there in America?

More than 20 million Signup and view all the answers

Sole proprietors keep all profits from their business.

True Signup and view all the answers

What type of responsibility does a sole proprietor bear?

All financial responsibility and liability Signup and view all the answers

What is the purpose of a business license?

To document local business activities Signup and view all the answers

Match the negatives of sole proprietorships with their descriptions:

Owner liability = The owner is responsible for all debts Unlimited liability = Owner's personal assets are at risk Lack of permanence = Business may cease if owner leaves or dies Long working hours = Owner must work hard and longer hours Signup and view all the answers

What does collateral mean?

Assets with value that can be sold for cash Signup and view all the answers

Study Notes

Sole Proprietorship Overview

Sole proprietorship is a business structure owned and managed by a single individual, who has complete control and accountability.
There are over 20 million sole proprietorships in America, making it the most common form of business ownership.

Characteristics of Sole Proprietorships

Sole proprietors make all decisions independently and prefer to give orders rather than take them.
Owners benefit from keeping all profits generated by the business but also bear full financial responsibility and liability.

Financial Aspects

Business tax deductions offer favorable tax status, helping to lower overall taxable income for sole proprietors.
Business deductions can significantly reduce the owner's tax burden by reflecting expenses incurred in business operations.

Legal Considerations and Liabilities

The owner of a sole proprietorship has unlimited liability, meaning personal assets can be at risk if the business incurs debts or legal issues.
Collateral refers to assets that hold value and may be sold for cash, which could be used to secure loans or fulfill financial obligations.

Challenges and Negatives

Sole proprietors face several challenges including significant personal liability and the necessity to work long hours and hard, often exceeding typical working conditions.
There is also a lack of permanence in sole proprietorships, as the business is closely tied to the owner, impacting its longevity upon their departure or inability to continue operating.

Description

Test your knowledge on the key characteristics of sole proprietorships with these flashcards. Explore concepts from ownership, accountability, decision-making, and tax deductions. Perfect for anyone studying business ownership structures.