Final answer:
The disadvantages of sole proprietorships include unlimited personal liability and vicarious liability, profits being considered personal income for tax purposes, and difficulty in raising capital. The exception is that sole proprietors are not required to register within a specific timeframe based on the industry they are in.
Step-by-step explanation:
The correct answer is a. Sole proprietors must register within 6 months of commencing business in any one of the following industries mining, manufacturing, trading or contracting. If such registration is not filed, the business is not legally a sole proprietorship. This statement is false, as sole proprietors are not required to register within a specific timeframe based on the industry they are in. It is important to note that while sole proprietors are not required to register, they may need to obtain necessary licenses and permits based on local and state regulations.
On the other hand, the other statements are true disadvantages of sole proprietorships:
- b. With respect to tortious actions by employees, sole proprietors are exposed to both unlimited personal liability and vicarious liability. This means that the sole proprietor can be held personally liable for any wrongdoing or negligence by their employees, potentially risking their personal assets.
- c. Profits earned by a sole proprietorship are considered personal income, for tax purposes. As the sole proprietor, all profits earned by the business are taxed as personal income, meaning the individual is responsible for reporting and paying taxes on the income generated by the business.
- d. It may be difficult for a sole proprietor to raise capital, because only her assets can be offered as security when loans are sought. Since a sole proprietorship is not a separate legal entity from its owner, lenders may be less willing to provide loans or credit to sole proprietors, as they can only use their personal assets as collateral.