Question

Suzanne Pogell wanted to learn to sail, but she could not find no one to teach her because men were the only ones who sailed, and women were their crew. She finally did convince someone to teach her to sail, and after mastering sailing, she started an all-woman sailing school called Womanship as a sole proprietorship. When she dies, the:

1) business dies with her

2) business continues with the employees running it

3) government takes over and sells the assets

4) business can be continued by any blood relative

5) business must shut down until after her will is probated

correct answer is (1 business dies with her)

Answer 1

Answer : correct answer is (1 business dies with her)

Reasons and explanations given below :

Effect : The primary effect of the death of a sole proprietor is that the business cannot continue in its existing form. The business must either wind down completely, be transferred to another individual or legal entity pursuant to the last will and testament of the sole proprietor or the assets sold to a third party.

Considerations : A primary concern of a sole proprietor is ensuring that her family is financially protected if she dies, particularly if she dies prematurely. For this reason, a sole proprietor includes a provision in her will directing the sale of the business or appointing a family member to take over business operations.

Misconception : A common misconception associated with a sole proprietorship is that this type of business has an independent legal existence, such as that of a corporation, partnership or limited liability company. In fact, the sole proprietorship's existence is completely linked to the individual who created and runs the venture, which means all taxes and debts rest with the owner.

Warning : Tax problems can arise when a sole proprietor dies. For example, if the assets of the business pass through a will, estate and inheritance taxes might prove significant. Therefore, estate planning needs to include dealing with a sole proprietor's business and the assets of that enterprise.