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How does a? |
sole proprietorship function? A sole proprietor, essentially, is his own business. He has no protection, that a corporate entity would provide. In other words there is unlimited liability. A sole proprietorship, or simply proprietorship, is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. A sole proprietorship essentially means a person does business in their own name and there is only one owner. A sole proprietorship is not a corporation, it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporate entity would have to. Most sole proprietors will register a trade name or "Doing Business As". This allows the proprietor to do business with a name other than his or her legal name and also allows the proprietor to open a business account with banking institutions. [edit] Advantages In comparison, an identical small business operating as a corporation or partnership would be required to prepare and submit a tax return several pages in length plus quarterly and annual payroll tax returns. Additionally, all of the profits from the business go right to the owner. A sole proprietorship often has a lot of freedom from government regulations. Every form of business ownership has some sort of government regulation, but in general, the sole proprietorship has the least. [edit] Disadvantages A business organized as a sole proprietorship will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company. It can also sometimes be more difficult to raise bank finance, as sole proprietorships cannot grant a floating charge which in many jurisdictions is a sine qua non of bank financing. Hiring employees may also be difficult. This form of business will have unlimited liability, therefore, if the business is sued, the proprietor is personally liable. The life span of the business is also uncertain. As soon as the owner decides not to have the business anymore, or the owner dies, the business ceases to exist. A sole proprietor is also responsible for his or her own health insurance, and may find difficulty finding any if one of the family members to be covered has a previous health issue. Another disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a limited liability company, or LLC. Note that such an LLC would still be treated as a sole proprietorship for income tax accounting purposes. Retrieved from "http://en.wikipedia.org/wiki/sole_propri... www.wikipedia.com |
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