Lit1 Task 310.1.2

PART A

1. Sole Proprietorship: Is officially defined as an unincorporated business owned by a single

person and it is the most popular type of business in the United States. Some advantages of a

sole proprietorship are: it’s simple to create and terminate, the owner has total autonomy and

complete ownership of the business’s finances, and taxes are relatively easy and

straightforward. Some of its disadvantages are; its resources are limited to the personal

financial resources of its owner and their ability to secure credit and receive loans, the liability of

the owner is unlimited and unshared, and it will end with the death of the owner unless their

Last Will and Testament specifically states it may be continued.

a. Liability – Financial liability in a sole proprietorship is unlimited and unshared which

means there is no distinction between your assets and liabilities and your business

assets and liabilities. This means if your business were to fail, your personal assets and

future earning power have no protection from creditors with the exception of your life

insurance benefits and cash value.

b. Income Taxes - Your income and the business income are taxed as one using a 1040 and

a Schedule C. All profits of the business are considered your income including anything

not withdrawn from the business; however you are able to deduct costs of doing

business from your taxable income.

c. Longevity / Continuity – You may end the business anytime you wish by completing any

outstanding contracts or financial obligations and not taking on new business.

Additionally, in the event of your death, the business will terminate unless you have

expressly stated in your Last Will and Testament that your business may be continued.

Without this, the only other way it can survive is if all of your heirs agree to the

continuation.

d. Control – As the owner of a sole proprietorship, you have complete and total autonomy

over the business’s operations up to and including hiring someone to...