Sole Proprietorship Term Papers

A sole proprietorship is the simplest form of business entity. It is also the most common form of business. At the end of 2000, there were over eighteen million registered sole proprietorships in America. This kind of a business is owned and managed by a single individual. It can be organized relatively informally and is not subject to specific governance laws like other forms of business structures. It also has a relatively simple management structure.

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Sole proprietors (people who own sole proprietorships) are fully liable for any debts that they incur on the business. Their personal assets could also be taken in order to pay back business debts by a court order. It is not a limited liability business entity.

Tax specifications:

A sole proprietorship is legally joined to its owner and is thus not treated seperately. A sole proprietor reports all the business profit/loss in his personal income tax return (IRS Form 1040 along with Schedule C).

Sole Proprietorship - Key Points

There are no specific rules and specifications for creating a sole proprietorship.
Owner can utilize all profits as well as losses for business purposes.
All capital is acquired from the owner as well as from loans according to the owner's personal creditworthiness.
Assets can be sold in total as well as in parts.
The owner is responsible for managing the business and also heads the company.
The business does not file its own taxes as a separate entity.
There are no financial reporting requirements or standards for sole proprietorships.
There is no charge for registration.
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Advantages of sole proprietorship:

It is relatively cheap and uncomplicated to set it up. You do not need to file any specific papers to set it up -- you quite simply create a sole proprietorship simply by starting your own business. However, you do need to follow and acquire any industry specific permits or licenses required under law.

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As a sole proprietor, you never end up paying double taxes unlike in a corporation where sometimes you do pay double taxes.

Disadvantages of sole proprietorship:

While conducting your business as a sole proprietor, you may sometimes be required to pay higher taxes than normal. If your total income exceeds $115,000 you would have to pay your income tax at the highest rate. You can reduce your tax burden however in this case by incorporating your business.

The fundamental drawback of sole proprietorships is that the sole proprietor is personally liable for all the debts of his business. The reason for this is, once again that in the eyes of the law, a sole proprietorship is not legally separate from its owner.
References: Sole Proprietorship: Small Business Start-Up Kit, By Daniel Sitarz, Nova Publishing Company 2000.

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