To: Mr. XYZ
From: ABCD
Date: 06.05.2015
Subject: Research on the right form of business entity

Mr. XYZ,
Conducting thorough research on the plausibility of choosing a specific form of legal business entity form for a certain specific business, several facts have been learned. I have been able to understand why it is always very much needed to know and verify the right form of legal structure to be applied to a business before actually setting up the business and carry on with its operation. As the business of my desire must have to be established in the state of Florida, the primary research has been thoroughly based on the legal requirements of setting up any form of business in the concerned state. The desired form of business is a bookstore.
The basic task before setting up any business calls for determining the legal structure that will suit the business in an appropriate manner. Several options, in this regard, have been explored by me. This exploration has made it possible for me to ultimately choose the right kind of legal structure befitting the bookstore business. I have explored the different forms like sole proprietorship and partnership, and not the forms like a limited liability (LLC) and a corporation. I have not thought it right to go deep into the structural details of such legal forms of business because I have never thought of investing that much in my business. In the course of my research I did look for gaining more knowledge about sole proprietorship form of business. I have learned that sole proprietorship is a business “that legally has no separate existence from its owner. Income and losses are taxed on the individual’s personal income tax return” (“Sole Proprietorship”, n.d.). It is the simplest form of business compared to other legal forms of business and it is not a legal entity and “it simply refers to a person who owns the business and is personally responsible for its debts” (“Sole Proprietorship”, n.d.). The sole proprietorship business can be either run under the name of the owner or any other name befitting the business can be chosen. The trade name does not, by any means, create any legal entity separate from the owner in a sole proprietorship business (“Sole Proprietorship”, n.d.). Moreover, going through the legal framework and economic implications of setting up a sole proprietorship business I have learned about some of the basic advantages and disadvantages of this particular business form. As for the advantages, it must be said that sole proprietorship is easy and inexpensive to form. I have learned that “A sole proprietorship is the simplest and least expensive business structure to establish. Costs are minimal, with legal costs limited to obtaining the necessary license or permits” (“Sole Proprietorship”, n.d.). This form of business is also very much suitable for having a complete control because as “you are the sole owner of the business, you have complete control over all decisions. You aren’t required to consult with anyone else when you need to make decisions or want to make changes” (“Sole Proprietorship”, n.d.). The economic side of this business and basically the process of tax preparation are also comparatively easy. A sole proprietorship business is not taxed separately and so “it’s easy to fulfill the tax reporting requirements for a sole proprietorship. The tax rates are also the lowest of the business structures” (“Sole Proprietorship”, n.d.). But I have also learned about some basic disadvantages of a sole proprietorship business structure. One primary disadvantage of a sole proprietorship business is that, here the personal liability is unlimited. As there is no legal separation between the owner and the business, the owner “can be held personally liable for the debts and obligations of the business. The risk extends to any liabilities incurred as a result of employee actions” (“Sole Proprietorship”, n.d.). Moreover, in for a sole proprietorship business it’s often very hard to raise money for funding the business. This is because the owner “can’t sell stock in the business, investors won’t often invest. Banks are also hesitant to lend to a sole proprietorship because of a perceived lack of credibility when it comes to repayment if the business fails” (“Sole Proprietorship”, n.d.). The concept of heavy burden is also related to sole proprietorship form of legal business. The burden of success and failure both rests on the shoulder of the owner and hence, it is often considered a stressful business framework to set up. In respect of taxation, I have learned that usually in different states of the United States the sole proprietor reports income and losses and expenses with standard forms like Schedule C and Form 1040 (“Sole Proprietorship”, n.d.). Moreover, “The “Bottom-line amount” from Schedule C transfers to your personal tax return. It’s your responsibility to withhold and pay all income taxes, including self-employment and estimated taxes” (“Sole Proprietorship”, n.d.).
After determining the legal structure of sole proprietorship form of business I shifted by interest to the partnership form so that later on I can choose from the two the best that will be befitting my business. Partnership is that form of a legal business in which the ownership of a single business is shared by two or more people. In this type of business, “Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business” (“Partnership”, n.d.). Exploring partnership business as a legal entity I did learn that there are basically three types of partnerships approved by the federal administration. These three types include general partnerships, limited partnerships, and joint ventures. General partnerships assume that “profits, liability and management of duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement” (“Partnership”, n.d.). Limited partnership, which is also known as partnership with limited liability, on the other hand, is more complicated than general partnership. This form of partnerships allows “partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are attractive to investors of short-term projects” (“Partnership”, n.d.). Then there are joint ventures. This form of partnership acts as a general partnership but only for a limited time period or for only a single project and “Partners is a joint venture can be recognized as an ongoing partnership if they continue the venture, but they must file as such” (“Partnership”, n.d.). Just like sole proprietorship business, partnership business form has its own advantages and disadvantages. Just like sole proprietorship businesses, partnerships are also easy and inexpensive to form. In this regard it must be said that the “majority of time spent starting a partnership often focuses on developing the partnership agreement” (“Partnership”, n.d.). The advantage of shared financial commitment can be enjoyed in this form of business because in a partnership business “each partner is equally invested in the success of the business. Partnerships have the advantage of pooling resources to obtain capital. This could be beneficial in terms of securing credit, or by simply doubling you seed money” (“Partnership”, n.d.). The concept of complementary skills can be properly applied to partnerships because “A good partnership should reap the benefits of being able to utilize the strengths, resources and expertise of each partner” (“Partnership”, n.d.). Finally, “Partnerships have an employment advantage over other entities if they offer employees the opportunity to become a partner. Partnership incentives often attract highly motivated and qualified employees” (“Partnership”, n.d.). But there are disadvantages too. In a partnership form of business the elements of joint and individual liability act together and hence, “Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt” (“Partnership”, n.d.). Also, often disagreements crop up in partnerships and hence, in a partnership the partners “should consult each other on all decisions, make compromises, and resolve disputes as amicably as possible” (“Partnership”, n.d.). Last, but not the least, “Because partnerships are jointly owned, each partner must share the successes and profits of their business with the other partners” (“Partnership”, n.d.). Now, in terms of taxation, what I found is that, the taxation policies for partnership businesses are far more complicated than sole proprietorship businesses. Partnership taxes generally include annual return on income, employment taxes, excise taxes and partners in addition are responsible for several other taxes encompassing income tax, self-employment tax, and estimated tax (“Partnership”, n.d.). Moreover, the legal requirements of partnerships are also complicated than that of the sole proprietorship businesses. For an example, in a partnership business copies of Schedule K-1 (form 1065) have to be furnished to all partners by the date the form is required to be filled including any kind of extensions and as partners are not employees they are not eligible for Form W-2 (“Partnership”, n.d.).
Now, as I have been more inclined to set up a bookstore, I think that the sole proprietorship form of business will be suiting me more. It is a fact that at the initial stages of my business I want to avoid time-consuming administrative details and would prefer to avoid costly fees while registering the new business and that’s why I should choose to establish a sole proprietorship business. I am more willing to set up the business as a sole proprietorship and not a partnership because sole proprietorship “imposes the least amount of administrative and regulatory requirements, allowing a business to focus on growth and profitability rather than the myriad of legal compliance issues faced by corporations” (Ingram, n.d.). Furthermore, I am not willing to take the monetary help of any other person while setting and running the business and hence, I must avoid partnership. I am willing to establish a small bookstore with a single outlet and I am quite capable of transforming my passion of book reading and collecting into a form of business without the help of a business partner. Moreover, adhering to the sole proprietorship structure I will be able to avert from complicated tax-paying procedures and will have more control on my business, and these are also the reasons why I am willing to start my bookstore business as a sole proprietorship business entity.
As I have to set up my business in the state of Florida, I did a thorough research on the legal requirements of setting up a sole proprietorship in the concerned state and extracted some important information. In the state of Florida I will be enjoying some benefits of choosing a sole proprietorship business. In Florida I can establish my sole proprietorship business without filling any legal documents with the Florida Department of State and through four simple steps I can set up my bookstore business in Florida, and the steps include choosing the business name, filing a trade name with the Department of State, obtaining licenses, permits, and zone clearance, and obtaining and Employer Identification Number (“How to Establish a Sole Proprietorship in Florida”, n.d.). I have already completed the first step that is required for establishing a sole proprietorship business in Florida. I have chosen the name “A Novel Thought” for my bookstore. Adhering to the legal requirements of the state I have chosen this name as it is not too similar to any other registered businesses and if it would have been the case then I would have been facing trademark protection-related litigations. I have selected the name after going through the Websites of Florida Department of State and U.S. Patent & Trademark Office to ensure that the chosen name is not similar to any other business operating in any part of the United States. But I have to complete other three steps to ultimately set my business run in Florida. As the name of my business is different than my legal name, as per regulations of Florida, I will have to register the trade name. After choosing the name for my business I will need to publish it in a local newspaper in the county where my business will be located and to file my trade name I can download the Trade Name Form and mail the completely filled form to the Department of State (“How to Establish a Sole Proprietorship in Florida”, n.d.). I can also file the name online at the Department of State’s Online Fictitious Name Registration with a filling fee of $50 (“How to Establish a Sole Proprietorship in Florida”, n.d.). After this process I will have to obtain some variety of licenses, permits, and zoning clearance. But as I am going to run a bookstore, not so many licenses will be needed by me. But I will have to visit the Florida Department of Business and Professional Regulation (DBPR) which is in charge of licensing and regulating most professions in Florida (“How to Establish a Sole Proprietorship in Florida”, n.d.). I am planning to run my business smoothly and hence, I will be appointing three employees. That is one primary reason why I will have to satisfy the fourth step of establishing a sole proprietorship business in Florida. Adhering to the fourth step I will have to obtain an Employer Identification Number (EIN). The EIN is “a nine digit number issued by the IRS for tax reporting purposes. All businesses with employees are required to report wages to the IRS using their EIN” (“How to Establish a Sole Proprietorship in Florida”, n.d.). For the business purpose I will have to open a bank account and banks often require EIN for opening a new account primarily to reduce the risk of identity theft (“How to Establish a Sole Proprietorship in Florida”, n.d.). Apart from these four steps, I will have to satisfy few more steps to start a sole proprietorship business in Florida. I will have to open a business bank account, as stated before, and using my fictitious business name and EIN, I will have to set up a bank account to keep my personal and business finances separately (“How to Establish a Sole Proprietorship in Florida”, n.d.). I will have to then obtain general liability insurance because “sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy may be the only form of financial protection against unforeseen events” (“How to Establish a Sole Proprietorship in Florida”, n.d.). Then I will have to look after the tax portion. I will be required to items like sales tax and use tax but all such reporting depends upon the type of sole proprietorship business. I will have to register with Florida’s Department of Revenue’s Online Business Tax Application or will have to file a paper application (“How to Establish a Sole Proprietorship in Florida”, n.d.). These are the steps which, in addition to the primary four steps, I will need to set up a sole proprietorship business in Florida.
Adhering to the federal taxation policy I will have not only to pay the income tax but self employment tax too. As a matter of fact, “A sole proprietorship doesn’t have to pay income taxes as a business. Instead, the owner of the business pays personal income taxes on the profits from the business. As a result, the same income tax rates that apply to individuals apply to sole proprietorships. However, sole proprietorship income is, by definition, self-employment income, and that adds another dimension at tax time” (Merritt, n.d.). As per the federal law the tax rate that a sole proprietor pays depends on the taxable income of the owner which means the total income minus any adjustments or deductions (Merritt, n.d.). In this regard I have learned that “As of 2013, the federal government had seven tax rates for individual income: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent” (Merritt, n.d.). Moreover, I have also learned that each of the rates applies to a specific portion of the income that is taxable and as per my assumption my business will be falling under the first slab. I did also learn that fact that I am going to be counted as eligible for “self-employment tax” because as per assumption my business will be earning profit more than $400 in a year and to calculate and pay this tax I will have to file Schedule SE with my tax returns (Merritt, n.d.). I will also be paying the Social Security tax and the Medicare tax. Being a sole proprietor I must make contributions to the Social Security and Medicare systems and these contributions together are called self-employment taxes (“How Sole Proprietors Are Taxed”, n.d.). I have learned that “Self-employment taxes are equivalent to the payroll tax for employees of a business. While regular employees make contributions to these two programs through deduction from their paychecks, sole proprietors must make their contributions when paying their other income taxes” (“How Sole Proprietors Are Taxed”, n.d.). I am also liable to pay the self estimated tax because as I don’t have an employer to withhold the income taxes from my paycheck, it will be my job to set aside enough money to pay taxes on any business income brought by me during the year and to do this I must estimate how much tax I will owe at the end of each year and I will have to make quarterly estimated income tax payments to the IRS, and if required, to the tax agency in Florida (“How Sole Proprietors Are Taxed”, n.d.).
These are all the details which I have learnt about setting my business of choice in the state of Florida. Please let me know if you have any question regarding my findings.
Sincerely,
(Your name)

References
How Sole Proprietors Are Taxed (n.d.). NOLO. Retrieved May 6, 2015, from http://www.nolo.com/legal-encyclopedia/how-sole-proprietors-are-taxed-30292.html
How to Establish a Sole Proprietorship in Florida (n.d.). NOLO. Retrieved May 6, 2015, from http://www.nolo.com/legal-encyclopedia/how-establish-sole-proprietorship-florida.html
Ingram, D. (n.d.). What Type of Businesses Are Best Suited for the Sole Proprietorship Business Form? Chron. Retrieved May 6, 2015, from http://smallbusiness.chron.com/type-businesses-suited-sole-proprietorship-business-form-10025.html
Merritt, C. (n.d.). Tax Rates for a Sole Proprietorship. Retrieved May 6, 2015, from http://yourbusiness.azcentral.com/tax-rates-sole-proprietorship-14339.html
Partnership (n.d.). Choose Your Business Structure. U.S. Small Business Administration. Retrieved May 6, 2015, from https://www.sba.gov/content/partnership
Sole Proprietorship (n.d.). Choose Your Business Structure. U.S. Small Business Administration. Retrieved May 6, 2015, from https://www.sba.gov/content/sole-proprietorship-0
Sole Proprietorship (n.d.). Entrepreneur. Retrieved May 6, 2015, from http://www.entrepreneur.com/encyclopedia/sole-proprietorship