Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 1 - Introduction to Financial Statements - Questions - Page 27: 3

Answer

Advantages: Simple to establish, tax advantages. Disadvantages: Harder to raise funds, personal legal liability, hard to transfer ownership.

Work Step by Step

Sole proprietorships and partnerships are easy to set up and give one or more people direct control over the company. They are also not charged federal and state taxes. However, because there are only a few owners, it is harder to gather investments. In addition, sole proprietorships and partnerships are not a separate legal entity, and the owners are liable for all debts and legal obligations. Furthermore, units of ownership cannot be traded; the entire company must be bought or sold in the absence of shares.
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