Agribusiness
Library
LESSON L060006: SOLE PROPRIETORSHIPS
Objectives
1. Describe characteristics of a sole
proprietorship.
2. List advantages of a sole proprietorship.
3. List disadvantages of a sole proprietorship.
Key Terms
•Business entity
•Sole proprietorship
•Unlimited liability
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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.
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A. It is the oldest, most
common, and simplest
form of business
organization.
B. One person can serve
as the business decisionmaker.
C. No registration with the
state is required, as is
necessary with a
corporation or a limited
liability company (LLC).
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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.
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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.
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E. Start-up costs may be
minimal.
F. A sole proprietorship is a
good type of organization
for a business:
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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.
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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.
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B. The owner has unlimited
liability.
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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.
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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.
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G. The sole proprietor must
pay a self-employment tax,
which consists of
contributions to Social
Security and Medicare.
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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.
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?