BUS CH. 36 Sole proprietorship

What is one of the four key factors an entrepreneur should consider when choosing a business entity?

Ease of creation and ongoing formalities.

What is a critical consideration regarding the owners of a business when selecting an entity type?

The extent of the owners' liability.

When choosing a business entity, what financial aspect related to government obligations must be considered?

Tax considerations.

What financial consideration is crucial for entrepreneurs when choosing a business entity, especially for growth?

The need for capital.

What is a sole proprietorship?

A form of business where the owner is actually the business, and it is not a separate legal entity.

Legally, how is a sole proprietorship distinct from its owner?

It is not a separate legal entity from the owner.

What formal action is required to form a sole proprietorship?

No formal action is required to form a sole proprietorship.

Provide an example of a typical sole proprietorship.

A babysitter or a freelance writer.

What kind of federal or state government approval is required to create a sole proprietorship?

None; no federal or state government approval is required

While no state/federal approval is needed, some local governments require all businesses to obtain a _____ to do business within the city.

license

Under what name can a sole proprietorship operate by default?

It can operate under the name of the sole proprietor.

What must a sole proprietor likely file if they choose to operate under a name different from their own?

A fictitious name statement

What is a primary advantage of a sole proprietorship regarding its formation?

It is easy and inexpensive to form.

What level of control does an owner have in a sole proprietorship?

The owner has complete control over the business.

How does a sole proprietorship's structure affect tax preparation?

It allows for easy tax preparation.

What is the tax structure of a sole proprietorship called where profits are not taxed at the business level?

Pass-through taxation.

How are the profits from a sole proprietorship taxed?

The owner pays taxes on business income as part of their personal income tax payments.

In a sole proprietorship, you will be taxed on _____ of the business.

all profits

What can a sole proprietor do to reduce their taxable business income?

They can deduct their business expenses.

What two types of taxes primarily comprise self-employment taxes?

Social Security and Medicare taxes.

Self-employment taxes are primarily for individuals who _____.

work for themselves

How is a sole proprietorship as a business entity taxed separately from its owner?

The business itself is not taxed separately; its income is the owner's income.

The 'bottom line' amount from what tax form transfers to a sole proprietor's personal tax return?

Schedule C

What is the primary disadvantage of a sole proprietorship regarding liability?

The owner has unlimited personal liability.

What does unlimited personal liability mean for a sole proprietor's personal assets?

Creditors may recover claims against the business from the sole proprietor’s personal assets.

What is a significant financial disadvantage of a sole proprietorship when it comes to expansion?

It is hard to raise money.

Why is raising capital difficult for a sole proprietorship?

Investors usually do not invest in them.

Who is legally responsible for the business's contracts in a sole proprietorship?

The sole proprietor is legally responsible