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Nontax Factors Of A Sole Proprietorship

712 words - 3 pages

Nontax Factors of a Sole Proprietorship

Nontax Factors of a Sole Proprietorship

Sole proprietors are individuals engaged in a business without the benefit of associates or a corporate charter. Sole proprietorships have many strengths and weaknesses. One of the strengths for the widespread use of the sole proprietorship generally relate to the central theme of the business form’s simplicity: the sole proprietorship has no formal legal requirements for establishment. To establish a sole proprietorship, all an individual is required to do is to start conducting a business for profit. There are no annual fees that have to be paid to form or maintain the sole proprietorship. Because ...view middle of the document...

The owner has unlimited personal liability for the liabilities of the sole proprietorship. As a practical matter, this means that any business liabilities may be satisfied from the owner’s personal assets. If the owner has personal liabilities, such liabilities may in turn be satisfied from the business assets. This event could cause a severe disruption of the owner’s ability to earn income. The capital structure of the sole proprietorship tends to be limited because the proprietorship generally depends on the resources of the owner to finance continuing operations and any expansion. It may be extremely difficult for the sole proprietor to borrow or raise additional capital from outside sources. The sole proprietorship lacks continuity of business life, as the business dies with the owner. Along the same lines, any incapacity or disability of the owner severely impacts the business. The owner typically has a difficult time finding a replacement. It also is difficult to transfer ownership of a sole proprietorship. Any transfer of an interest in the sole proprietorship disrupts the business, proves to be costly, and tends to discourage potential buyers. These difficulties limit the ability of the sole proprietor to receive payment for his or her goodwill. In fact, the departure of the sole proprietor from the business...

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