Net assets represent the residual value of a business after subtracting liabilities from assets, but their interpretation varies between corporations and sole proprietorships.

Corporation
Definition: In a corporation, net assets are equivalent to shareholders’ equity, reflecting the owners' (shareholders') claim on the company’s assets.

Balance Sheet Presentation: Listed as "Total Equity" or "Stockholders’ Equity," broken into components like common stock, retained earnings, and additional paid-in capital.

Liability Protection: Shareholders’ assets are separate from corporate net assets due to limited liability.

Profit Distribution: Profits increase retained earnings, while dividends reduce net assets.

Sole Proprietorship
Definition: Net assets represent the owner’s capital, directly tied to the proprietor’s investment and retained profits.

Balance Sheet Presentation: Shown as "Owner’s Equity," combining initial investment, net income, and owner’s withdrawals (drawings).

Unlimited Liability: The owner is personally liable for debts, meaning personal assets can be used to cover business liabilities.

Profit Impact: All profits/losses directly affect the owner’s equity, with no separation between business and personal finances.

Key Difference
While corporations treat net assets as shareholders’ equity with legal separation, sole proprietorships merge business and personal net assets, exposing the owner to greater financial risk. Understanding this distinction is crucial for financial reporting, taxation, and liability assessment.