MGT Notes

Reference: Corporate Finance – Ross et al, 12e, Pg 4

A Sole Proprietorship is a type of firm that includes just one individual, the founder. This is the cheapest type of business to form that does not need a charter, is taxed according to the individual’s income tax rules (no separate corporate taxes), has unlimited liability for its debts and obligations (no distinction is made between the individual’s and the firm’s assets) and its ability to raise money is limited to the individual’s wealth. A business license may be needed depending on the state and type of business. At the end of the year, all profits and losses belong to the sole proprietor. Finally, the life of the business is equal to the life of the proprietor.