Question

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed?
I. Sell the inventory and apply the proceeds to the debt
II. Sell the lighting fixtures from the building and apply the proceeds to the debt
III. Withdraw funds from Maria’s personal account at the bank to pay the store’s debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store’s debt

Answer 1

Answer:

V. Sell any assets Maria personally owns and apply the proceeds to the store’s debt

Explanation:

A sole proprietorship refers to a business venture owned and managed by a single person. The owner makes all the key decisions regarding the business. He or she enjoys all the profits by himself but also suffers all the losses alone.

Legally, a sole proprietor and the business are treated as one entity. The law does not distinguish between the assets and liabilities of the business, with those of its owner. A sole proprietor does not enjoy the benefits of limited liability. Should Maria's business fail it repaying its obligations, her properties may be used in settling the debts.