Business Case Study : Sole Proprietorship

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Sole Proprietorship A sole proprietorship is a business in which for all purposes, the business and the owner are one. The owner has the responsibility for and the power to make all decisions, absorb all of the risk and reap all of the rewards and benefits. In general the taxes and deductions go straight through the business to the owner and the owner has complete liability to all creditors. This type of business is best for a very small business usually containing only the owner. Sometimes there are between one and five employees, and rarely does it grow bigger than that. A restriction of this type of business is that it’s usually limited to what the owner is able to bring technically and physically, unable to expand past the owner’s knowledge and skills and diminishing in business when the owner goes on vacation or gets sick, and usually dissolving altogether when the owner leaves the business or dies. Liability – In a sole proprietorship along with control, the owner absorbs complete liability for all creditors and suits. While business insurance can be obtained to defray this, if a suit or bankruptcy is for more than the business insurance covers, the creditors can come after the owner’s personal assets. Life insurance is the one asset that is usually exempt from this making it very useful for owners of sole proprietorships to protect their assets. Income Taxes – Income taxes flow straight through the business to the owner with a schedule C, profit or loss from
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