Proprietorship

### What is a proprietorship? - [x] A business owned by a single individual, with the owner having complete control and personal liability. - [ ] A business owned by multiple shareholders, with limited liability for each. - [ ] A franchised business model with multiple franchisees. - [ ] A federally incorporated business with a board of directors. > **Explanation:** A proprietorship is an unincorporated business owned by a single person who has complete control over the business and is personally liable for all its debts. ### How is the income from a proprietorship reported? - [ ] On Form 1065 - [x] On Schedule C of Form 1040 - [ ] On Form 1120 - [ ] On Schedule K-1 > **Explanation:** Income from a proprietorship is reported on Schedule C of the owner's Form 1040, which details profit and loss specifically for self-employed individuals. ### What is a significant risk associated with a proprietorship? - [ ] Limited personal liability - [ ] Double taxation - [x] Unlimited personal liability - [ ] Higher corporate tax rates > **Explanation:** One of the primary disadvantages of a proprietorship is unlimited personal liability, meaning the owner's personal assets can be used to satisfy business debts. ### Can a proprietorship employ people? - [x] Yes, a proprietorship can hire employees, provided the owner complies with employment regulations and tax obligations. - [ ] No, only partnerships and corporations can hire employees. - [ ] Only if the proprietor's business revenue exceeds a certain amount. - [ ] Yes, but only independent contractors, not full-time employees. > **Explanation:** A sole proprietor can hire employees, but must comply with all employment laws and tax requirements, including Social Security and Medicare contributions. ### What is a common tax obligation for proprietors? - [x] Self-employment tax - [ ] Corporate income tax - [ ] Payroll tax for employees only - [ ] Franchise tax > **Explanation:** Proprietors are required to pay self-employment tax, which covers Social Security and Medicare taxes for income earned through their business practice. ### What is one main advantage of a proprietorship? - [ ] Unlimited liability protection - [ ] Ease of raising capital - [x] Simple and inexpensive to establish - [ ] Corporate veil protection > **Explanation:** One of the main advantages of a proprietorship is its simplicity and cost-efficiency in establishment and administration. ### What happens to a proprietorship if the owner passes away? - [x] The business typically ceases to exist unless a succession plan is set up. - [ ] It automatically becomes a corporation. - [ ] It continues to operate indefinitely as a separate legal entity. - [ ] It merges with any other businesses owned by the individual. > **Explanation:** A proprietorship generally ceases upon the owner's death unless mechanisms are established to transfer ownership or follow a legal succession plan. ### Which IRS form is used to list profit and loss for a proprietorship? - [ ] Form 1065 - [ ] Form 1120 - [ ] Form 941 - [x] Schedule C > **Explanation:** Proprietors use Schedule C to report income and expenses from their business on their personal Form 1040 tax return. ### How does a proprietorship differ from a partnership? - [x] A proprietorship is owned by one person, whereas a partnership is owned by two or more individuals. - [ ] A proprietorship is incorporated, whereas a partnership is not. - [ ] Proprietorships pay higher tax rates. - [ ] Partnerships don't require personal liability from owners. > **Explanation:** A proprietorship involves a single owner with personal liability; partnerships involve two or more individuals sharing ownership and responsibilities. ### Why might investors be wary of funding a proprietorship? - [ ] Proprietorships usually don't have payroll expenses. - [x] Proprietorships are often seen as riskier due to the owner's unlimited liability and potential operational limitations. - [ ] They are legally required to decline any funding. - [ ] Funding a proprietorship can lead to personal asset claims. > **Explanation:** Investors often view proprietorships as riskier investments due to the owner's unlimited liability, which can suggest a higher financial risk if the business fails.