Do Proprietorships Have Shares?
A sole proprietorship is a business owned by a single person. While a corporation can have one or more owners, it is a separate entity organized by filing articles of incorporation with the state's corporations office. A corporation issues stock shares, or certificates, to its owners. Sole proprietorships do not exist separate from the owners and do not have shares. The choice of a business entity affects its owners' rights and responsibilities.
Sole proprietors are personally responsible for all of the business' debts, including the acts of employees. The proprietor can have his property taken to pay off the obligations. If a business operates as a corporation, the shareholder has no liability beyond his investment. The company's property, rather than the shareholder's, answers for the debt.
A sole proprietor has complete control over the business. In a corporation, the directors make decisions and authorize contracts on the company's behalf. Owning shares affords no right to manage the business, although the shareholders choose the directors. Shareholders can name themselves directors if the corporation has a single or small number of shareholders. In a closely held corporation such as this, the shareholders participate significantly in the business.
Shareholders receive part of the company's profits through dividends. Generally, profits from a corporation are taxed twice, when earned by the corporation and when received by the shareholder. However, a corporation with no more than 100 shareholders can opt to be an S corporation so profits pass through to the shareholders. In this case, the profits get taxed once, when received as dividends. In a sole proprietorship, the owner pays taxes on profits along with income from other sources. The taxpayer reports business profits and losses on Schedule C of IRS Form 1040.
A corporation continues its existence even though a shareholder dies or transfers his stock. At the holder's death, the stock passes to the heirs or as directed by a shareholder's agreement. The existing shareholders must decide to terminate the corporation. A sole proprietorship ends with the owner's decision or death.