Dividends that a shareholder receives are The major disadvantage of a sole proprietorship is the fact that the owner of the establishment has unlimited liability. True or False

Dividends that a shareholder receives are

Answer

• are taxed at the shareholder's individual tax rate

Explanation:

When a company makes profit, it can either take the excess funds and divide them among the shareholders in form of dividends, or take the money and reinvest in order to earn more. When the company decides to pay dividends, the earnings will be taxed twice. First, taxation will be done at the company's year-end and second taxation will be on the dividends each shareholder receives. This is considered as double taxation though the second type of taxation on dividends si more favorable because tax is based on individuals tax rate.

The major disadvantage of a sole proprietorship is the fact that the owner of the establishment has unlimited liability. True or False

Answer

• True

Explanation:

Sole proprietorship is a type of business that is owned and operated by one individual and which requires minimal capital to start. Thus, in sole proprietorship, the owner is solely responsible/liable for all the debts. Because he/she receives no joint funding like in partnerships, he is considered to have unlimited liability which is a major drawback because if he can not settle the debts, the business will be closed.