Sole Proprietorship

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Sole Proprietorship
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Types of Businesses

• Sole Proprietorship
• Partnership
• Corporation

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Sole Proprietorship

• the most common form of business organization
• business
• an organization that sells goods and services
  owned by one person or family
• it is also the oldest and easiest to form
• they are concentrated in small businesses
• repair shops
• small retail outlets
• service providers
• painters, plumbers, lawn -care
• there are over 16 million in the US
• 3 out of 4 businesses in the U.S. are sole
  proprietorship

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SP

• Sole proprietorship is also called a
  proprietorship
• the owner/ manager is called a proprietor
• they perform the everyday tasks of running the
  business
• a proprietorship may also hire other people to be
  managers
• Workers that run the business
• but they are employees not owners

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SP 2

• Sometimes the owner of the business is required
  to have a license to operate a business in a
  particular field
• the owner (proprietor) furnished expertise,
  money, equipment, and management (capital)
• because of this the proprietor gets all the
  profits from the business
• The proprietor has full claim to the assets
• property owned by the business
• this is if there are no debts

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SP3

• The sole proprietorship is the simplest business
  form under which one can operate a business.
• The sole proprietorship is not a legal entity.
• It simply refers to a person who owns the
  business and is personally responsible for its
  debts.
• Most sole proprietorships earn modest incomes.
• Many proprietors run their businesses part-time.
• While it is the most commonly instituted
  business, it also has the highest rate of failure
• in some years up to 50, but on a regular basis
  it is around the correct figure

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Characteristics of SP
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Debt

• If there are debts owed creditors have first
  claim against the company assets.
• creditors are those whom money is owed
• the first creditor in everything is the
  government
• this comes in the form of taxes

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Bankruptcy

• A company can hold off creditors by entering
  bankruptcy
• bankruptcy is the legal nonpayment of financial
  obligations
• these laws are all regulated by federal
  government laws
• Many businesses do not want to enter bankruptcy
  because it will hurt their credit and effect any
  future business ventures.

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There are two types of bankruptcy

• Personal Bankruptcy
• - where the individual goes bankrupt
• these are covered under Chapter 7 and Chapter 13
  in the Federal bankruptcy law
• Business Bankruptcy
• - where a business goes bankrupt
• this is covered under Chapter 11
• business can enter bankruptcy on their own
• called voluntary bankruptcy
• or be forced into bankruptcy by creditors called
  involuntary bankruptcy

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Advantages of a Sole proprietorship

• Owner is the Boss
• Owner Receives all Profits
• Owner personally knows employees and customers
• Owner can act Quickly in Decision Making
• Legal Advantages
• Owner usually pays less taxes than a corporation

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Owner is the Boss

• there is pride and satisfaction in being ones
  own boss
• the proprietor can be inventive and creative in
  working out ideas to make the business a success
• the owner does not have to rely on the say of
  someone else to get something done

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Owner Receives all Profits

• all money after expenses goes to the owner.
• the expenses are payment to creditors, salaries,
  and taxes
• the owner is more likely to work overtime and to
  think continually of how to make the business
  better
• since an owner will get all the profits this is
  an incentive for an owner to make the business
  operations as efficient as possible

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Owner personally knows employees and customers

• because most proprietorships are small, the owner
  and employees know one another personally
• the relationship can lead to mutual understanding
  and feeling of loyalty because they work side by
  side
• since the proprietor works in a community and is
  at work all the time, they have a tendency to
  know all their customers
• they will know what their customers want and the
  best means of supplying their wants
• proprietors also become leaders of the community
  because people in the community are their
  customers.

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Owner can act Quickly in Decision Making

• Sole proprietorships can make decisions without
  consulting others
• this allows them to act promptly when the need
  arises
• buying merchandise and equipment
• change location
• design credit terms
• management flexibility allows the business to
  adjust to changes quicker than if they had to
  deal with other owners.

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Legal Advantages

• a sole proprietorship can usually begin and end
  business activities without legal formalities.
• the business can be organized without a lot of
  legal documents or government restrictions.
• this means that the proprietorship is free from
  red tape
• usually the owner must meet a few legal
  requirements
• registering a business or trade name
• taking out any necessary licenses
• this is to make sure that two businesses dont
  take out the same name
• local governments requirement restaurants,
  motels, retail stores, and repair shops have
  certain licenses before they open.
• some of these requirements is that a business
  have liability insurance

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Owner usually pays less taxes than a corporation

• - the personal income tax is less than the
  corporate tax

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Disadvantages of a Sole Proprietorship

• Owner may lack necessary skills and abilities
• Owner may Lack Proper funds
• Owner bears all losses
• Illness or death may close the business

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Owner may lack necessary skills and abilities

• each person has special skills and abilities.
• Selling
• talented at purchasing goods
• keeping records
• supervision
• getting proper financing
• All of these abilities are important to the
  success of a business
• A proprietor may not be good in all of these
  abilities.
• No one can do everything well
• there is a wide range of managerial and
  operational tasks .
• even if a person is good at everything at a small
  level, once the business grows the owner may not
  be able to handle operational tasks with proper
  efficiency.

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Owner may Lack Proper funds

• Additional funds needed to run the business
  (capital) are always needed.
• Financial assistance on a large scale may be
  difficult to obtain by a single owner
• Therefore the expansion of business may be slowed
  by the lack of capital.
• business must operate with the funds available to
  a single owner.
• these funds are limited

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Owner bears all losses

• Sole proprietorships assume a great deal of risk.
• While the proprietor gets all the profits if the
  business fails they are responsible for all the
  losses.
• Called unlimited liability
• if the business fails creditors have claim to all
  the business assets (anything in the business
  that has a value.
• if the assets do not equal the debts, creditors
  are entitled to the owners personal property
  until the debt is cleared
• thus the proprietorship may not loose property to
  the business but personal property such as home
  and car.
• if a person files Chapter 11 they may be able to
  hold on to some of these personal possessions
  until the debts are paid.

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Illness or death may close the business

• a sole proprietorship lacks long term continuity
• The continuing operation of a sole proprietorship
  depends on the longevity of the proprietor.
• If the owner becomes unable to work because of
  illness or dies, the business would have to close
  down..
• Change in personal interests can also close down
  a proprietorship