Exam 26: Sole Proprietorships and Private Franchises

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When a business is relatively small and is not diversified,employs rela tively few people,has modest profits,and is not likely to ex pand sig nifi cantly or require extensive financing in the im me di ate fu ture,the most ap propriate form for do ing busi ness may be a sole proprie torship.A sole proprietorship is easier and less costly to start than other forms of business,because few legal forms are involved.The owner is free to make business decisions without consulting others.Taxes are paid on the business's in come as the owner's personal income.In a sole proprietorship,the owner and the business are the same.Anyone who creates a business without designating a specific form for its organization is doing business as a sole proprietorship.An advan tage of the sole proprietorship is its greater organizational flexibility over other forms of business organization.The owner can operate the enterprise without any formalities.A signifi cant disadvantage of this form of organization,however,is that unlike most other forms of business organization,there are no limits on the li ability of the owner for the debts and obligations of the firm.Another dis advantage of the sole proprietorship form can be the ability of a sole proprietor to raise capital while maintaining control and retaining the same form.This course may be lim ited chiefly to borrowing funds.Bringing in partners would convert the business to a partnership.Issuing stock would require incorporating or establishing another form of business.Selling the business would sacri fice all control.The only way to obtain additional business capital without accumulating it through business profit is by borrowing funds.