Introduction to Business Organization

Objective #1: Describe characteristics of a sole proprietorship. Objective #2: List advantages of a sole proprietorship. Objective #3: List disadvantages of a sole proprietorship.

Describe characteristics of a sole proprietorship.

 Sole proprietorship- a business entity with a single owner/operator  Business entity- a professional organization offering something that has real existence

 The oldest, most common, simplest form of business organization  One person can serve as the business decision- maker  No registration with the state is required  It is easily set up and maintained  The owner is personally responsible for assets, income taxes, and business debts  It is relatively simple to manage and control

List advantages of a sole proprietorship.

 The owner is his or her own boss  No legal formalities are involved in forming or dissolving the business  The money the business makes belongs to the owner  Decisions can be made quickly  Start-up costs may be minimal

 Good type of organization for a business: ◦ That will remain small ◦ That does not have great exposure to liability ◦ That does not justify the expenses of incorporating and ongoing corporate formalities

List disadvantages of a sole proprietorship.

 Raising capital to start the business is difficult  Banks are less willing to lend money to one person for a business venture  Banks that approve loans may have higher interest rates  The owner has unlimited liability

 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  The business ends if the owner dies  The owner is responsible for the entire business

 The owner is responsible for personal health insurance  The owner is responsible for withholding and paying all income taxes  The sole proprietor must pay a self-employment tax, which consists of contributions to Social Security and Medicare  He or she must pay estimated taxes throughout the year  The sole proprietor may have to register the business name and pay local taxes for owning a business.