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Published byValentine Bryant Modified over 9 years ago
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Introduction to Business Organization
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Objective #1: Describe characteristics of a sole proprietorship. Objective #2: List advantages of a sole proprietorship. Objective #3: List disadvantages of a sole proprietorship.
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Describe characteristics of a sole proprietorship.
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Sole proprietorship- a business entity with a single owner/operator Business entity- a professional organization offering something that has real existence
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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
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List advantages of a sole proprietorship.
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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
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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
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List disadvantages of a sole proprietorship.
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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
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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
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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.
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