A good friend of yours asks for your advice on whether or not to maintain his Tree Trimming Service business as a sole proprietorship or to incorporate. You interview him with and receive the following responses:

Q. Does your business face any risks? A. Yes, I pay for liability insurance in case a tree or limb falls and damages property or injures employees. My insurance company says the rates are going up because more businesses of my type are facing civil liabilities. If I ever got sued it would put me out of business.

Q. Do you plan to raise capital for expansion? A. I have a line of credit from the bank if I need cash.

Q. What is your tax situation? A. This business is my only form of income, so my taxes are rather easy to calculate.

Formulate a thoughtful response include at least one reference to an accounting principle.