Legal Business Studyguide
Legal 2 Test 2 Studyguide
Sole Proprietorships the simplest form of business organization. Sole proprietorships are the most common form of business organization in the US. Major advantages: * Forming a sole proprietorship is easy and does not cost a lot. * The owner has the right to make all management decisions concerning the business, including those involving hiring and firing employees. * The sole proprietor owns all of the business and has the right to receive all of the business’s profits. * A sole proprietorship can be easily transferred or sold if and when the owner desires to do so; no other approval (such as from partners or shareholders) is necessary.
Disadvantages:
* The sole proprietor’s access to the capital is limited to personal funds plus any loans he or she can obtain * The sole proprietor is legally responsible for the business’s contracts and the torts he or she or any of his or her employees commit in the course of employment.
Creating a sole proprietorship is easy. There are no formalities, and no federal or state government approval is required.
A sole proprietor bears the risk of loss of the business. In addition, the sole proprietor has unlimited personal liability. Therefore, creditors may recover claims against the business from the sole proprietor’s personal assets (e.g., home, automobile, bank accounts).
A sole proprietorship is not a separate legal entity, so it does not pay taxes at the business level. Instead, the earnings and losses from a sole proprietorship are reported on the sole proprietor’s personal income tax filing. A sole proprietorship business earns income and pays expenses during the course of operating the business. A sole proprietor has to file tax returns and pay taxes to state and federal governments. For federal income tax purposes, a sole proprietor must prepare a personal income tax Form 1040 U.S. Individual Income Tax Return and report the income or loss from the sole
Sole Proprietorships the simplest form of business organization. Sole proprietorships are the most common form of business organization in the US. Major advantages: * Forming a sole proprietorship is easy and does not cost a lot. * The owner has the right to make all management decisions concerning the business, including those involving hiring and firing employees. * The sole proprietor owns all of the business and has the right to receive all of the business’s profits. * A sole proprietorship can be easily transferred or sold if and when the owner desires to do so; no other approval (such as from partners or shareholders) is necessary.
Disadvantages:
* The sole proprietor’s access to the capital is limited to personal funds plus any loans he or she can obtain * The sole proprietor is legally responsible for the business’s contracts and the torts he or she or any of his or her employees commit in the course of employment.
Creating a sole proprietorship is easy. There are no formalities, and no federal or state government approval is required.
A sole proprietor bears the risk of loss of the business. In addition, the sole proprietor has unlimited personal liability. Therefore, creditors may recover claims against the business from the sole proprietor’s personal assets (e.g., home, automobile, bank accounts).
A sole proprietorship is not a separate legal entity, so it does not pay taxes at the business level. Instead, the earnings and losses from a sole proprietorship are reported on the sole proprietor’s personal income tax filing. A sole proprietorship business earns income and pays expenses during the course of operating the business. A sole proprietor has to file tax returns and pay taxes to state and federal governments. For federal income tax purposes, a sole proprietor must prepare a personal income tax Form 1040 U.S. Individual Income Tax Return and report the income or loss from the sole