Sole Proprietorship
(noun)
a business that is wholly owned by a single person, who has unlimited liability
Examples of Sole Proprietorship in the following topics:
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Disadvantages of Sole Proprietorships
- Sole proprietorships face a number of difficulties in the longer terms compared to limited liability companies.
- Sole proprietorships are the smallest form of business organization, and also the most common in the United States.
- However, while there are certain advantages (it is easier to set up a sole proprietorship than a limited liability company, for instance), there are a number of big disadvantages, particularly in the long term, that make the sole proprietorship model quite unattractive to business owners.
- Unlimited liability: Your small business, in the form of a sole proprietorship, is personally liable for all debts and actions of the company.
- A sole proprietor will be responsible for all the costs and debts of their company.
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A Brief Definition of Sole Proprietorships
- A sole proprietorship is owned and run by one individual who receives all profits and has unlimited responsibility for all losses and debts.
- An example of a sole proprietorship is an individual who runs a local food truck and would be listed as such with the city.
- A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.
- It is a "sole" proprietorship in contrast with partnerships.
- More than 75% of all United States businesses are sole proprietorships.
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Advantages of Sole Proprietorships
- The advantages of a sole proprietorship versus other forms of organizations is the relative ease of set-up and the lower start-up costs.
- As a sole proprietor, filing your taxes is generally easier than a corporation.
- Sole proprietorships also have the least government rules and regulations affecting it.
- Sole proprietorships also do not pay corporate taxes.
- The sole proprietor can even pass the business down to their heir, a common practice.
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Limited Liability Companies (LLCs)
- An LLC is a hybrid business entity which has characteristics of both a corporation and a partnership, or sole proprietorship in some cases.
- For tax purposes, an LLC can be registered as a partnership or sole proprietorship (and a corporation even though it is not a corporation for other purposes).
- If you register your LLC as a sole proprietorship or a partnership, you will not have to pay federal taxes on your income.
- For tax purposes, an LLC can be registered as a partnership or sole proprietorship (and even a corporation even though it is not a corporation for other purposes).
- So if you register you LLC as a sole proprietorship or a partnership, you will not have to pay federal taxes on your income.
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Partnership Agreements
- Partnerships are similar to sole proprietorships except that two or more people own the business and operate with a pre-arranged agreement.
- Like proprietorships, the law does not distinguish between the business and its owners.
- Setting up a partnership is more complex than setting up a sole proprietorship, but it is still relatively easy and inexpensive compared to limited liability companies.
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US legal issues
- Businesses with one owner (the most common and referred to as sole proprietorships in the United States) can be launched without any legal assistance, and depending on the location, with or without certain permits.
- A sole proprietorship is an individual owner of a business (with or without employees).
- The amount of capital required to start a sole proprietorship is generally minimal.
- General partnerships are similar to the combination of a group of sole proprietorships in that the partners share workloads, profits, and liabilities.
- Partnerships, like sole proprietorships, are generally dissolved upon the death of a partner.
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Types of Ownership
- Small businesses are normally privately-owned corporations, cooperatives, partnerships, or sole proprietorships.
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Defining the Balance Sheet
- In financial accounting, a balance sheet is a snapshot of a company's (sole proprietorship, a business partnership, a corporation, or other business organization, such as an LLC or an LLP) financial situation.
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Advantages and Disadvantages of Partnerships
- As in sole proprietorships, partnerships have unlimited liability.
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Advantages of Corporations
- Unlike a partnership or sole proprietorship, shareholders of a modern business corporation have limited liability for the corporation's debts and obligations.