Business Law (Chapter 5)

What is a sole proprietorship?

• A business owned by two or more partners

• A business owned and operated by a single individual

• A corporation with a single shareholder

• A nonprofit organization

What percentage of businesses in the U.S. are sole proprietorships?

• 50%

• 60%

• 70%

• 80%

What is one key characteristic of a sole proprietorship?

• Limited liability for business debts

• Shared decision-making with a board

• Full control and decision-making power by the owner

• Separate taxation from personal income

What is a major disadvantage of a sole proprietorship?

• No need for business licenses

• Easy access to investors

• Low tax burden

• Unlimited personal liability

What does “pass-through taxation” mean in a sole proprietorship?

• Business income is reported on the owner’s personal tax return

• The business pays corporate tax

• Business income is taxed separately from the owner's income

• No taxes are required for a sole proprietorship

Which of the following is NOT a way to start a sole proprietorship?

• Filing articles of incorporation

• Getting necessary licenses and permits

• Using a DBA (Doing Business As) name

• Getting an EIN if hiring employees

How do sole proprietors typically raise capital?

• Issuing stocks

• Personal savings, loans, or reinvesting profits

• Seeking venture capital investment

• Receiving government grants

What is one reason banks and investors hesitate to fund sole proprietorships?

• They require too much paperwork

• Sole proprietors have limited liability

• The business structure has high risks due to personal liability

• Sole proprietors do not have to pay taxes

Why is opening a separate business bank account recommended for sole proprietors?

• It is a legal requirement in all states

• It helps separate personal and business finances

• It eliminates the need for tax reporting

• It allows the owner to avoid business debts

Which of the following is an advantage of a sole proprietorship?

• Protection from self-employment taxes

• Limited liability for debts

• Easy access to capital

• Minimal legal requirements