Question

If an owner is responsible for all the debts and choice of a business in he is considered to have

Answer 1

One of the first decisions that you will have to make as a business owner is how the company should be structured. This decision will have long-term implications, so consult with an accountant and attorney to help you select the form of ownership that is right for you. In making a choice, you will want to take into account the following:

Your vision regarding the size and nature of your business.The level of control you wish to have.The level of “structure” you are willing to deal with.The business’s vulnerability to lawsuits.Tax implications of the different ownership structures.Expected profit (or loss) of the business.Whether or not you need to re-invest earnings into the business.Your need for access to cash out of the business for yourself.

Sole Proprietorships

The vast majority of small business start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.

Advantages of a Sole Proprietorship

Easiest and least expensive form of ownership to organize.Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.Sole proprietors receive all income generated by the business to keep or reinvest.Profits from the business flow-through directly to the owner’s personal tax return.The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship



Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.

May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.Some employee benefits such as owner’s medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Answer 2

Answer:

Unlimited Liability

Explanation:

The reason business owners of sole proprietorships and partnerships are subject to unlimited liability is because both business structures do not create a separate legal entity. The owners and the business are one entity.