Chapter Two
Sole Proprietorships
Sole Proprietorship

A business owned and operated
by one person
Sole Proprietorships
ADVANTAGES
 Easy to form and maintain
 Inexpensive to form
 Owner is sole decisionmaker
 Managerial discretion
 All profits are retained by
owner
 Pass-through tax status
DISADVANTAGES
 Unlimited personal liability
 Lack of continuity
 Difficulties in raising capital
 Possible lack of expertise in
management
Personal Liability

Liability extending beyond what is
invested in a business to an
individual’s personal assets (also
called unlimited liability)
Capital

Money used to form and operate
a business or other venture
Name Considerations



Fictitious name: a name that must be registered
with state or local officials because it does not
disclose the surname of the business owner
DBA: ‘‘Doing business as’’; another name for a
fictitious business name statement
Fictitious business name statement: record filed with
public officials to identify the owner of a business
operating under a name other than the owner’s
surname
Key Features of Sole Proprietorships





Business is owned and managed by one person
Sole proprietor retains all profits and bears all losses
Sole proprietor’s personal assets can be reached to
satisfy business obligations
Business is easily and inexpensively formed
All income earned (and loss incurred) is passed
through to sole proprietor, who pays tax at
appropriate individual tax bracket