Question

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily to raise capital, are two key advantages to that form of business.
a. True
b. False

Answer 1

Answer: False

Explanation:

While Proprietorship do indeed have the tax advantage of not having to pay Corporate income tax, the same cannot be said for the ease at which they can raise capital.

In general, Proprietorships find it hard to raise capital as investors will be worried of investing into a one person run operation. They would rather prefer that their investments were protected by the law and that the company had enough experienced people on board as well which is why they would prefer a Corporation.

Even getting loans as a Proprietorship can be hard because banks will set a high rate for the business to cater for a default risk.