SOLE PROPRIETORSHIP (CHAPTER 2)

DISADVANTAGES OF SOLE PROPRIETORSHIP

1) UNLIMITED LIABILITY. The SP is personally liable for the debts & obligation of the business b/c SP &SPS are the same entity. SP is also liable for the tort or civil wrongs by employees in the scope of employment. To protect the disadvantage, the SP can seek insurance which is not available for all risks. **ways to protect assets: By how they hold title of the business** 2) LACK OF BUSINESS CONTINUITY. Because SPS is affiliated with SP, the SPS is terminated upon the death of the SP. If the assets descend to an heir who continues to operate the business, a new SPS has been created. 3) DIFFICULTIES IN RAISING CAPITAL. The SP is limited in the method of obtaining additional funds or to her own personal funds or attempts to borrow money (has no one else to rely on for capital contributions). If all attempts fail the SPS can collapse, while partners can contribute needed funds to raise capital or needed money or corporations can sell stocks to raise money. 4) MANAGEMENT VULNERABILITIES. If the business grows the SP may need to spend funds to hire outside consultants and advisors, while a PS may hire new partners and a corporation may rely on its board of directors to provide business expertise. 5) NO DIVERSITY OF MANAGEMENT. SP runs every aspect of the business. 6)DIFFICULTY W/TRANSFERABILITY. Often SP is linked to the person (so it is difficult to seel because of difficulty in calculating good will. Ex: nail tech business 6) TAX DISADVANTAGES.

ADVANTAGES OF SOLE PROPRIETORSHIP

1)EASE OF FORMATION. The SP is easy & inexpensively formed and operated. 2) MANAGERIAL DISCRETION. The SP can make any decisions re: the business; can select name of the business, establish its location, hire employees, decide in what product & services it will provide; they are not vulnerable to the neglect of another partner & can sell without the approval of another. 3) RETENTION OF PROFITS. The SP can keep all of the profits generated by the business. 4) PASS-THROUGH TAX STATUS. The SP reports profits or loss on his or her personal tax returns. The business itself pays no tax. Note: Can also, can transact business in another state without having to qualify or pay a fee. They are the sole owner/makes all decisions/likes control/always "right"/ may not play well with others/not concerned about personal liability exposure/never going to be sued; keeps all profits.

APPLICATION FOR REGISTRATION OF FICTITIOUS NAME

False information on an electronic application to the department of state constitutes a third-degree felony...FL statutes s. 817. 155.

CAPITAL

Money used to form and operate a business

ROLE OF PARALEGAL

Para is involved in the following tasks: 1) Determine if the business needs a license 2) Reviews state statutes to determine requirements for fictitious business names and preparing and filing a fictitious business name statement if needed 3) Considering if full name search should be conducted for the business; and 4) Obtaining appropriate tax forms and business permits.

PAY LOCAL, STATE AND FEDERAL TAXES

a-If employees are involved, must complete & file form SS-4 w/IRS - get tax id in return. b- State sales tax permits if taxable products are sold. c - Federal Income Taxes: Rpt all net income; Each quarter form ES 1040 must be filed w/pmnt of 1/4 of the amt of income taxes & ss taxes estimated to be due. d- Employees Withholding Allowance Certificate *IRS form w-4 each employee to complete to calculate amt of federal taxes to be deducted. e- Federal Excise Taxes * on certain activities (anything dangerous such as: tobacco, alcohol, gas, tires, firearms etc.) not everyone pays this. f- Unemployment Compensation Taxes * Must pay federal unemployment taxes if you paid wages of $1,500 in any quarter or had at least 1 employee for 20 mos. g- If you own property, you must annually pay Ad Valorem Taxex (Real Property Taxes). h- Tangible Property Taxes * Pay tax on any personal property used in a business and on all inventory (on any equipment every year). i- Florid Excise Taxes * Fla. tax on tabacco, alcohol, mineral, oil & gasses, telecommunications, gambling, cruise ships.

What type of business can conduct as a sole proprietorship?

Almost any kind: retail toy shop, a restaurant or a law firm. The key factor of a sole proprietorship is managed and owned by one person. A person can hire managers or employees to help in running the business but the business is characterized by a sole decision maker.

SOLE PROPRIETORSHIP

An unincorporated business owned by one person who is generally called the sole proprietor ( the business) who is solely and personally responsible for all debts and liabilities of the business and who is entitled to all profits of the business.

LOCAL BUSINESS TAX RECEIPT

Application f/pmnt of local business tax receipt; must first be obtained from the City prior to obtaining from the County. -Go to office; provide fictitious name & other licenses; pay $ ; business must display license.

FICTITIOUS BUSINESS NAME STATEMENT

Document indicating the name under which a business is operating; filed with the county where the business is located. Record filed with public officials to identify the owner of a business operating under a name other than the owner's surname

DBA

Doing Business As; another name for a fictitious business name statement.

SOLE PROPRIETOR

Owner of a sole proprietorship. (The person); SP retains all profit and bears all losses.

TAXATION OF SOLE PROPRIETORSHIP

-Does not pay taxes at the business level. -Earnings and losses reported on SP personal income tax return. -Form 1040. -Schedule SE Self Employment Tax attached. -Business owners can take a 20% deduction on their pass-through qualified business income before paying taxes according to the individual tax rates and brackets.

FORMATION OF SOLE PROPRIETORSHIP

There is no FL Statute governing formation of a SPS. Other considerations & steps that a SP must complete prior to operating his business: 1) LICENSING CONSIDERATION. If SP engages in a business that requires a license he will need to review states statutes and administrative code or contact any association that may govern the profession such as a liquor or real estate license. 2) NAME CONSIDERATION. SP can choose to operate their business under a name other than their own.

OBTAIN NECESSSARY INSURANCES:

a- Liability b-Workers Compensation *4 or more employees in any type of business or 1 or more in the construction business must carry this type of ins. (very expensive - many people try to exempt out of it/ has steep penalties if you are suppose to carry it and you don't) c- Hazard Insurance *If business burns or destroyed by natural disaster. d- Automobile Insurance for your business e- Health Insurance * w/Affordable Care Act, employers with 50+ full time employees must provide insurance to them. f- Employee Theft * if business my experience employee theft, you can purchase "bond" from your insurance company. g- Malpractice * For certain types of professionals such as Doctors, Laywers, Accountants. h- Sales Tax Bonds * Fla. DOR may require a bond to guarantee payment of sales taxes - usually for the first year.

FICTITIOUS NAME - *(Fla. Stat. 865.09)

A name that must be registered with state or local officials because it does not disclose the surname of the business owner. It does not apply to businesses who are already registered to conduct businesses in FL under their corporate names; partnership names; or LLC'S names. *The purpose of the law is to provide notice to one dealing w/ a business of who is the real party in interest. -To apply, one must advertise at least once in a newspaper in the county where the business is located. -Register online and pay $50 & $30 f/ certified copy(Sunbiz.org) - may need it to file for business tax receipt at the county level. -Valid f/5 yrs then must renew. -Penalties if you don't comply, are: Cannot sue in Fla. Court/ Consider 2nd-degree misdemeanor and jail time up to 60 days & fines up to $500.

PERSONAL LIABILITY

Liability extending beyond what is invested in a business to an individual's personal assets (also called unlimited liability); SP's personal assets can be reached to satisfy business obligation.