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Questions and Answers
What type of enterprise is a sole proprietorship?
What is the responsibility of a sole trader for the losses and debts of the business?
What is the legal status of the business in a sole proprietorship?
What may a sole proprietor use as a business name?
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How does a sole trader receive profits from the business?
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Study Notes
Sole Proprietorship Overview
- A sole proprietorship is a type of enterprise owned and operated by a single individual, allowing full control and decision-making power.
- This form of business is easy to establish, requiring minimal legal formalities compared to other business structures.
Financial Responsibility
- The sole trader is personally liable for all losses and debts incurred by the business, meaning personal assets can be at risk if the business fails.
- This unlimited liability highlights the importance of effective financial management for sole proprietors.
Legal Status
- A sole proprietorship is not recognized as a separate legal entity, meaning the owner and the business are considered one and the same for legal purposes.
- This legal status simplifies tax reporting, as business income is reported on the owner’s personal tax return.
Business Name Usage
- A sole proprietor may use their own name or choose a unique business name, often referred to as a "doing business as" (DBA) name.
- Registering a business name may be required in certain jurisdictions, offering some level of name protection.
Profit Distribution
- Profits from the business flow directly to the sole proprietor, who retains all earnings after expenses, taxes, and operational costs.
- This direct profit allocation allows for simple income management but also means the sole trader must handle all tax implications personally.
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Description
Test your knowledge of sole proprietorships with this quiz! Explore the characteristics, advantages, and disadvantages of this type of business structure. See how much you know about the legal and financial aspects of running a sole proprietorship.
