Advantages and Disadvantages of Organizing a Business as a Sole Proprietorship
What is the main disadvantage of a sole proprietorship?
Choose the correct option:
A. Lack of liability protection
B. Favorable tax treatment
C. Control of the business
D. Easy transfer of ownership through stock sales
What are the advantages of a sole proprietorship?
Choose the correct option:
A. Minimal starting costs
B. Utmost solitude
C. Easy establishment and running of the company
D. Simple change of legal structure
E. Easy closure of the firm
Final answer:
A. Lack of liability protection
Explanation:
A sole proprietorship is a business organization in which the business is owned and operated by one person. It offers simplicity in setup, favorable tax treatment, and control over the business. However, one disadvantage is that a sole proprietorship does not allow for an easy transfer of ownership through stock sales.
A sole proprietorship is a type of business organization in which the business is owned and operated by one person. The main disadvantage of a sole proprietorship is the lack of liability protection. Since there is no legal separation between the individual and the business, the owner is personally liable for all debts and obligations of the business.
On the other hand, there are several advantages of organizing a business as a sole proprietorship. These include minimal starting costs, the ability to work independently, easy establishment and running of the company, flexibility to change the legal structure if needed, and the simplicity of closing down the firm if necessary.
Overall, while a sole proprietorship offers many benefits such as autonomy and easy management, it is essential to consider the potential risks involved, especially the lack of liability protection.