Section 1 Sole Proprietorships
Preview
Objectives
After studying this section you will be able to:
- Explain the characteristics of sole proprietorships.
- Analyze the advantages of a sole proprietorship.
- Analyze the disadvantages of a sole proprietorship.
Section Focus
A business is an economic institution that seeks a profit by allocating resources to satisfy customers. Sole proprietorships are the most common form of business in the United States. They are easy to establish and offer owners both the benefits and drawbacks that come with full control of a business.
Key Terms
- business organization
- sole proprietorship
- business license
- zoning law
- liability
- fringe benefit
Entrepreneurs must make many decisions as they start up new businesses. One of the first decisions they face is what form of business organization best serves their interests. A business organization is an establishment formed to carry on commercial enterprise. In other words, a business organization is a company, or firm. Sole proprietorships are the most common forms of business organization.
The Role of Sole Proprietorships
A sole proprietorship is a business owned and managed by a single individual. That person earns all of the firm's profits and is responsible for all of the firm's debts. This type of firm is by far the most popular in the United States. According to the Internal Revenue Service, about 75 percent of all businesses are sole proprietorships. Most sole proprietorships are small, however. All together they generate only about 6 percent of all United States sales.
Many types of businesses can flourish as sole proprietorships. Look around your town. Chances are good that your local bakery, your barber shop or hair salon, your bike-repair shop, and the corner store are all sole proprietorships.
Advantages of Sole Proprietorships
While you need to do more than just hang out a sign to start your own business, a sole proprietorship is simple to establish. It also offers the owner numerous advantages.
Personal pride motivates many sole proprietors.
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