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Section 1, Sole Proprietorships

Section 1, Sole Proprietorships. Chapter 8: Business Organizations. The Role of Sole Proprietorships. -A business owned and managed by a single individual. Earns all profits but responsible for all the debts This type of firm is the most popular in the United States

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Section 1, Sole Proprietorships

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  1. Section 1, Sole Proprietorships Chapter 8: Business Organizations

  2. The Role of Sole Proprietorships • -A business owned and managed by a single individual. • Earns all profits but responsible for all the debts • This type of firm is the most popular in the United States • 73% of all businesses are sole proprietorships but only make 6% of the sales

  3. Advantages of Sole Proprietorships • Ease of Start-up • Relatively Few Regulations • Sole Receiver of Profits • Full Control • Easy to Discontinue

  4. Ease of Start-up • Pretty much anyone can start a sole proprietorship- just need these minimum requirements: • 1. Authorizations- business license • 2. Site permit- in order to use another building • 3. Name- must register a business name

  5. Relatively Few Regulations • Even small businesses are subject to regulations • Some may include zoning laws which are when cities designate certain areas for residential use and for business. • This may prohibit some from having sole proprietorships out of their homes

  6. Sole Receiver of Profits • After paying income taxes, the sole proprietor gets to keep all the profits

  7. Full Control • Sole proprietor can run their business as they wish.

  8. Easy to Discontinue • Can stop operations and do something else for a living if they wish—they just must pay off all debts and taxes.

  9. Disadvantages of Sole Proprietorship • Unlimited Personal Liability • Limited Access to Resources • Lack of Permanence

  10. Unlimited Personal Liability • Liability: legally bound to pay debts • If a business fails, the owner must pay all debts. They may have to sell personal property to cover any outstanding obligations.

  11. Limited Access to Resources • If your business is expanding and you need more equipment, a sole proprietor has to pay for this out of his own pocket • Human capital is also lacking—a proprietor may not have the skills to run a successful business. • Ex. May be great at skills but not at accounting or bookkeeping

  12. Lack of Permanence • A sole proprietorship has a limited life—if a proprietor dies, retires, has an illness, loss of interest, or any other reason, the business simply ceases to exist. • They have little to offer their employees in terms of fringe benefits- payments other than wages, such as paid vacation, retirement pay, and health insurance

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