1. Agribusiness Library LESSON L060006: SOLE PROPRIETORSHIPS

2. Objectives 1. Describe characteristics of a sole proprietorship. 2. List advantages of a sole proprietorship. 3. List disadvantages of a sole proprietorship.

3. Key Terms Business entity Sole proprietorship Unlimited liability

4.  A sole proprietorship is a business entity with a single owner/operator.  A business entity is a professional organization offering something that has real existence.  The following factors characterize a sole proprietorship.

5.  A. It is the oldest, most common, and simplest form of business organization.  B. One person can serve as the business decision- maker.  C. No registration with the state is required, as is necessary with a corporation or a limited liability company (LLC).

6.  D. It is easily set up and maintained.  E. The owner is personally responsible for assets, income taxes, and business debts.  F. It is relatively simple to manage and control.

7.  A sole proprietorship has several advantages.  A. The owner is his or her own boss.  B. No legal formalities are involved in forming or dissolving the business.  C. The money the business makes belongs to the owner.  D. Decisions can be made quickly.

8.  E. Start-up costs may be minimal.  F. A sole proprietorship is a good type of organization for a business:  1. That will remain small  2. That does not have great exposure to liability  3. That does not justify the expenses of incorporating and ongoing corporate formalities.

9.  A sole proprietorship has several disadvantages.  A. Raising capital to start the business is difficult.  1. Banks are less willing to lend money to one person for a business venture.  2. Banks that approve loans may have higher interest rates.

10.  B. The owner has unlimited liability.  Both the business and personal assets of the sole proprietor are subject to the claims of creditors.  When the owner assumes unlimited liability, he or she may lose all personal and business assets to pay bills or money owed to other parties.  C. The business ends if the owner dies.

11.  D. This owner is responsible for the entire business.  E. The owner is responsible for personal health insurance.  F. The owner is responsible for withholding and paying all income taxes.

12.  G. The sole proprietor must pay a self-employment tax, which consists of contributions to Social Security and Medicare.  In addition, he or she must pay estimated taxes throughout the year.  H. The sole proprietor may have to register the business name and pay local taxes for owning a business.

13. REVIEW What are the characteristics of a sole proprietorship? What are some advantages of a sole proprietorship? What are some disadvantages of a sole proprietorship?