| LO1 - Describe the characteristics of a proprietorship. |
A proprietorship is a business owned by one person. It is not a separate legal entity like a corporation. This means that the business and the owner are considered to be the same. For example the profits of a proprietorship are taxed as part of the owner’s personal income tax return. Also, a corporation has limited liability. Creditors cannot normally access the personal assets of shareholders to satisfy debts. On the other hand, a proprietorship has unlimited liability. If the business cannot pay its debts, the owner is responsible for these even if the business’ debts are greater than the owner’s personal resources. Another difference: a corporation has unlimited life. Shares can be bought or sold, or inherited by others. A proprietorship ceases to exist when the owner dies.
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