BMAL 590 Legal Environment of Business Questions And Answers
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Course
BMAL 590
Institution
BMAL 590
BMAL 590 Legal Environment of Business
Questions And Answers
Sole Proprietorship This is the simplest and also the most prevalent form of business in
the United States.
As the name implies, in a sole proprietorship, one individual owns all the assets and is
responsible for all liabilities - ...
BMAL 590 Legal Environment of Business
Questions And Answers
Sole Proprietorship This is the simplest and also the most prevalent form of business in
the United States.
As the name implies, in a sole proprietorship, one individual owns all the assets and is
responsible for all liabilities - debt, contracts, and tort liabilities.
The proprietor is the business. The business is not different from the proprietor.
If the business has to be conducted in a name other than that of the proprietor, the name must be
registered with the appropriate state authority.
A sole proprietorship ceases to exist when the proprietor decides to wind up the business, or on
the death of the proprietor, whichever is earlier.
Advantages of Sole Proprietorship Easy and simple to set up.
One person is in control.
Only one level of income tax - proprietor reports income and loss on personal returns.
, BMAL 590 Legal Environment of Business
Questions And Answers
Proprietor receives all the profits and other benefits.
limitations of sole proprietorship Proprietor is personally liable for business obligations.
The risk is high.
Difficult to raise capital. Can borrow from relatives and friends and from institutions as an
individual.
General Proprietorship Two or more persons agree to invest their money, time, and skills
in a business, and to share the profits/losses. Essentially, a GP is sole proprietorship with
multiple proprietors. Thus, the partners are personally liable for all partnership obligations.
The partnership agreement may be explicit or implied, but sharing of profit/loss must be real. In
other words, partners cannot merely receive wages or salaries.
Unless specified otherwise, each partner has some authority and a corresponding responsibility.
A partnership exists as an entity by itself and separate from its partners. It can acquire property.
, BMAL 590 Legal Environment of Business
Questions And Answers
Advantages of General Proprietorship Allows for a range of possibilities in ownership and
sharing.
One partner may invest money, another may provide space, and a third may provide expertise.
Yet, they may be equal partners.
Subject to only one level of tax - that of the individuals who are partners.
From a tax perspective, a partnership is a pass-through entity.
Does not necessarily terminate on the death, resignation, and even bankruptcy of a partner. Other
partners can decide to continue.
Limitations of General Proprietorship Individual partners are personally liable, just as in a
proprietorship.
When the partnership cannot repay its debts, honor its contracts, or fulfill its tort liabilities,
aggrieved parties can proceed against the partners in their individual capacity.
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