Sole Proprietorship Essential Question What is a sole

Sole Proprietorship Essential Question: What is a sole proprietorsip? What are the advantages and disadvantages of a sole proprietorship?

Sole Proprietorships • Business owned and controlled by one person • It is the oldest, simplest, and most common type of business organization • Examples include lawyers, hairstylists, plumbers, florists, and farmers

Sole Proprietorships • Financial resources available to one person are often limited – so sole proprietorships tend to be businesses that only require a small amount of capital (money).

Sole Proprietorship Start Up Costs Easy start up ▫ ▫ ▫ Requires small amounts of capital (money), (money) with veryfew legal considerations Sole proprietors must observe zoning laws which specify the areas of a city or county where various types of business activities can be pursued A city and state business license may be required

Sole Proprietorships - Taxes • The business itself is not “taxed”. The individual that owns the sole proprietorship pays taxes on the business. • FYI BELOW for those of you interested: • Sole proprietors must pay the entire amount themselves (although they can deduct half of the cost). The self-employment tax rate is 15. 3%, which consists of 12. 4% for Social Security up to an annual income ceiling (above which no tax applies) and 2. 9% for Medicare with no income limit or ceiling. • Sole proprietors file need to file two forms to pay federal income tax for the year. Firstly, there's Form 1040, which is the individual tax return. Secondly, there's Schedule C, which reports business profit and loss. Form 1040 reports your personal income, while Schedule C is where you'll record business income.

Sole Proprietorship Liability 1. Unlimited liability o Sole proprietors are personally responsible for all business debt – AKA liability o What is liability? • the state of being responsible for something, especially by law. • "the partners accept unlimited liability for any risks they undertake"

Sole Proprietorship Decision Making Sole responsibility o The owner is responsible for all aspects of running the business. o The sole proprietor makes ALL of the decisions by himself/herself. o This can have advantages and disadvantages o Demands on your time and energy may create frustration and reduce your sense of satisfaction and accomplishment.

Sole Proprietorship Advantages Control o Sole proprietors have complete control over the business, can be very important for quick decision making. o Sole proprietors can act quickly to correct problems or take advantage of opportunities. o Control tends to lead to personal satisfaction – a successful business is more rewarding.

Sole Proprietorship Advantages Profit o The owner keeps all of the profits. o Often the main reason for starting the business.

Sole Proprietorships Advantage Easy Start Up Taxed individually, not the business

Sole Proprietorship Disadvantages Limited growth potential o Sole proprietors generally use their own savings or borrow small amounts of money (from family, friends, the bank) to begin their business o Banks may require collateral – anything of value that a borrower agrees to give up if he or she is not able to repay a loan o Must have capital to expand the business

Sole Proprietorship - Disadvantages o Unlimited Liability n o Personally responsible for all goods and bads Sole Responsibility n n All aspects of running business Time, energy, decision making

Sole Proprietorship Disadvantages Lack of longevity o Longevity is the length of a firm’s life or the length of time the business operates. o Sole proprietorships depend on the health, commitment, and competence of one person – so they general have a shorter life span than other forms of business organization.