Question

Scott takes $10,000 from his bank account to set up a small donut-shop business. He meets with an attorney, and finds out he can set up a sole proprietorship for under $100, but a corporation would cost over $500 ($175 to the state, about $400 to the attorney). He decides on a sole proprietorship. He signs a one-year lease, and starts his business. After six months of operations, he closes the business because of much-lower-than-expected sales. After using the $10,000 from Scott, the business has unpaid expenses of:

$6,000 remaining rent due on the business lease thru end of the lease
$5,000 in wages to employees
$3,000 in payroll taxes
$35,000 in medical bills for a customer injured when a donut rack falls over on the customer, breaking several bones in the customer’s legs, and leaving the customer unable to work for several months.

Scott’s personal liability for these unpaid expenses is:

a. limited to the $10,000 already invested, plus the wages and taxes.

b. no liability at all.

c. limited to the $10,000 already invested.

d. complete liability for all debts.

Answer 1

Answer for the above question is Part D. That is complete liability for all debts.

In case of sole proprietorship ,sole person is liable for payment of all debts irrespective of his investment and irrespective of his internal & external libilities.

Sole person will be liable to pay all of these mentioned liabilities:

$6,000 remaining rent due on the business lease thru end of the lease
$5,000 in wages to employees
$3,000 in payroll taxes
$35,000 in medical bills for a customer injured when a donut rack falls over on the customer, breaking several bones in the customer’s legs, and leaving the customer unable to work for several months.