Business: Sole Proprietorship Essay

Business: Sole Proprietorship Essay

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Sole Proprietorship

A sole proprietorship is a business owned and controlled by a single individual. There are more sole proprietorships than any other type of business available (Lau, 2011). It is a simple type of business to set up, as well as simple to terminate. The proprietor has the freedom to determine operating hours, what services or goods to provide, where it operates, and what contracts to enter into without needed to consult another party. With full control, however, comes full liability. A proprietor is personally liable for all financial obligations whether they be debts from company operations or restitution ordered to be paid from third party suits. It can also be difficult to secure financing for a sole proprietorship as banks look at the business as an individual. Often, banks will treat loans to proprietorships as personal loans to the proprietor and require collateral.

Liability. All liability rests with the owner of the sole proprietorship. This can put the proprietor in a very difficult position if an individual were to sue the business. The courts consider the proprietor and proprietorship as one so when the business is sued, they are essentially suing the proprietor. All the proprietor’s personal assets such as their house, car, retirement account, and bank account are at risk. Debts the business is unable to cover must also transfer to the proprietor.
Income tax. The proprietor and their business are seen as a single individual by the government. As such, they are taxed together, once, as personal income tax. All profits gained through the sole proprietorship are direct income for the proprietor and are taxed as such. Any business expenses or losses can be deducted from their personal income tota...


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...ement decisions of the business.
Profit Retention. Profits are dispersed between the general and limited partner as designated by their agreement when they became partners. Limited partners typically receive a set amount of the profits.
Location (Expansion). All business decisions rest with the general partner. It is fully within their power to move or expand the business as they see fit.
Convenience or Burden (Compliance). A general partner not obligated to any outside party. To maintain limited liability, the limited partner must not be involved in any part of the business outside their financial investment.







Works Cited

Lau, T. a. (2011). The Legal and Ethical Environment of Business. Irvington, NY: Flat World Knowledg.
Stevick Jr., G. E. (2006). Essentials of Business Insurance. Bryn Mawr, PA: The American College of Financial Services.

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