...| The Criteria That Determine Sole Proprietorships | Not all corporations started as a corporate entity. Many businesses start out small with one owner. They are known as sole proprietorships, the simplest and most widespread form of business formation in the United States. Certain criteria are used to determine sole proprietorship status. A sole proprietorship: * is owned by a single individual When you are planning to do business with a sole proprietorship, bear in mind that since a single individual owns a sole proprietorship, one person makes all the decisions and does not have to contend with a legal department to approve contracts. The owner can only use personal funds, although he may have separate savings and checking accounts for the business. Also, it may be difficult for a sole proprietor to obtain loans so money may be tight. If a sole proprietor were to die, the business would probably end. * is not legally differentiated from the owner and is not usually required to register as a business A sole proprietor is not legally differentiated from the business, regardless of whether the business bears his name or a fictitious name, and does not have to meet many requirements to start a business. Since the business is not considered a legal entity, it is the owner who is sued rather than the business. * must be registered as a business if it operates under a fictitious name A sole proprietorship operating under a name other than the name of the owner is...
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...include: sole proprietorship, partnerships, and corporations. When starting a business, it is very important to weigh out the pros and cons of each type to decide which type would be best suit your particular business. Each type has its advantages and disadvantages that need to be considered before deciding which would be best moving forward. I will discuss the advantages, disadvantages, and differences of each type of firm. First, there is a sole proprietorship. “A sole proprietorship is someone who owns an unincorporated business by himself or herself.” (IRS.gov, 2016) This type of firm is the easiest to set up and the simplest of the business structures. It is by far the most popular because of its advantages. Some of these advantages include: ease of formation, least amount of record keeping, minimal regularly controls, and advantage of double taxation. With these great advantages comes a huge disadvantage, which is, there is no legal distinction between the assets and liabilities of the business and those of its owner. In a sole proprietorship you may reap all the reward from financial benefits, but you are solely responsible for all business risks involved. In a sole proprietorship if the business fails then that one individual stands to lose all personal assets and other possessions. The second type of business is a partnership. “A partnership is a single business where two or more people share ownership.” (SBA, n.d.) There are three types of partnerships: general...
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...LIT 1 – Task 1 | SUBDOMAIN 310.1 - BUSINESS LAW | Competency 310.1.2: Organizational Forms | | | | The following report will summarize the key differences between the various forms of legal business entities. The ownership forms covered will include sole proprietorship, general partnership, limited partnership, C-corporation, S-corporation, and Limited Liability Company. Also included will be a brief recommendation of the most appropriate form of ownership for the given manufacturing business. | Section A- For each of the various forms of business ownership, a brief description outlining the basic impact on the following criteria will be given; * Liability * Income Taxes * Longevity or continuity of the organization * Control * Profit Retention * Location * Convenience or burden Sole Proprietorship Perhaps the most common form of business ownership, sole proprietorship, is generally the simplest form of business ownership due to the lack of separation between the entity and the individual. While there are positive and negative implications to any form of business ownership, these are generally more exaggerated in the instance of sole proprietorship. The ease of formation and ownership and limited regulation are strong benefits, however, the negative aspects are far greater than in any other form of ownership. The first negative ramification is the lack of ability to continue the company after the owner either becomes unable or...
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...Sole Proprietorship: A business structure in which an individual and his or her company are considered a single entity for tax and liability purposes. There is no legal distinction between the owner and the business itself. ·Liability - Seeing as there is there is no difference between a company and the owner with a sole proprietorship, the proprietor has unlimited liability, meaning the owner of the business is personally responsible for all debts, contracts, and obligations the business has. Unlimited liability puts all of the proprietors assets (home, cars, bank accounts, etc.) at risk should a lawsuit not covered by insurance arrive, or should debts go unpaid. ·Income taxes- With no legal distinction between the owner and the business, income from the business is taxed as normal personal income. Tax rates are dependent on the state, but individual income tax is by and large high. ·Longevity/ Continuity- A sole proprietorship can only have a single owner, meaning no partners can be brought into the business. Seeing as the owner is the same as the business itself, if the owner were to die, the business also dies. The assets of the business become part of his/her estate. Sole proprietorship businesses can be dissolved as quickly as they can be created; the business assets can be sold or given away. ·Control- One advantage of a sole proprietorship is that the owner of the business has a large, near total amount of control. The owner can ultimately make all decisions...
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...entities are taxed differently. Understanding these basic differences will help you to identify federal income tax obligations as you conduct business with different business formations. Income taxation can impact commercial transactions between different kinds of businesses, such as sole proprietorships, partnerships, franchised, and corporations. Sole proprietorships A sole proprietorship is a small business owned by a single individual. The owner is the business; the business is not a separate legal entity. The federal income tax obligation to be aware of when conducting business with sole proprietorships is that the sole proprietorship pays income tax only once on the income of the business, which the owner reports on his personal income tax form. There is no separate tax-filing requirement for the business itself. Since the sole proprietor is the business, he is responsible for the same income tax obligations as are most individuals. He does get the benefit of all business deductions, which he can write off against his personal income. In a good year, the owner of a sole proprietorship may want to make capital purchases, and defer payments from creditors until after the end of the tax year, so that he can offset assets and liabilities against his tax burden. Partnerships In a partnership, two or more people agree to combine their money, ideas, skills, and efforts and then share the resulting successes or failures. A partnership itself doesn't pay taxes, but it does file an informational...
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...Sole proprietorship The sole proprietorship is the simplest form of business entity. Single person carrying on a business for profit. The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business beginning and ending the business venture are uncomplicated steps requiring little more than the decision of the sole proprietor This can be an advantage, especially when the proprietor is not certain whether he or she will wish to continue the venture for any significant length of time and thus is unwilling to spend much money on filings, legal drafting, and the like. Disadvantages: The sole proprietorship does not have any legal existence separate from that of its owner. It also removes any shield from liability that might otherwise protect the proprietor. Thus, the proprietor is personally liable for all obligations of the business Partnership In contrast to general partnership law, a limited partnership is not dissolved by the death of a limited partner, and a limited partner may not compel dissolution of the partnership absent contrary provisions in the partnership agreement partners in general partnerships are jointly and severally liable for all obligations...
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...include: sole proprietorship, general partnership, limited partnership, C-corporation, S-corporation, and Limited Liability Company. Other forms of business include: family limited partnership, professional partnership, professional corporation, and personal services corporation, but for the purposes of this document we will include only the most common and appropriate. We'll discuss the characteristics of each of these legal forms of business below. Sole Proprietorship: Sole Proprietorship is the most common form of business in the United States. This is most likely due to the ease with which this form of business can be established. In the United States more than 17 million companies are operated under the form of sole proprietor, this equates to approximately 73 percent of all businesses in this country. Sole Proprietorship is an unincorporated form of business which can be established simply and with very few legal formalities. Local permits and licensing are all that would be required in order to establish a sole proprietorship, unless the business intended to operate under a name other than that of its owner. A sole proprietorship can be terminated just as easily as easily as it was established. There is no legal action required for the termination of a sole proprietorship, an owner would simply need to settle all outstanding obligations and contracts. Simplicity in establishing and terminating a business would be the most apparent advantage of selecting sole proprietorship...
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...of Business There are at least five different forms of business. They are proprietorship, partnership, corporation, limited liability company, and cooperative. The three major forms of business are proprietorship, partnership, and corporation. With proprietorship (also known as sole proprietorship), the business is only owned by one person. This person assumes all of the responsibility for the business. They also receive all of the profit. According to Melicher, & Norton (2014), “Proprietorships are the most widely used form although they are generally the smallest organizations in terms of assets”. Almost three fourths of firms in the United States are sole proprietorships. Partnerships are the second largest form. With this form of business, two or more people own the business. The business is for profit. Many times people choose partnership because they need to pool finances, but it is also helpful to share knowledge, property, equipment, or business skills. One person may have the knowledge to run the business, but they need someone else with the finances. In some instances, they may start off as a sole proprietorship, but they change to a partnership in order to expand their company. “A corporation is a legal entity created under state law in the United States with an unending life and limited financial liability to its owners” (Melicher, & Norton, 2014). Corporations have shareholders. There are advantages and disadvantages to each form of business...
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...LIT1 Task 1 Part A (the report) SOLE PROPRIETORSHIP: A sole proprietorship is the simplest, quickest and cheapest form of business to start making it the most popular types for first time business owners. A business owner and a sole proprietor may operate under different names, but legally, they are the same entity. Which leads to one of the biggest disadvantages of becoming a sole proprietor; the owner is responsible for all debts and fault created by the business. One of the major advantages to starting a sole proprietorship is the simplicity behind the formation. There is very little paperwork that needs to be filed at the inception and it takes very little work to keep the business compliant with state and federal laws. Another advantage to a sole proprietorship is taxes. Any money made by a sole proprietor is considered income to the owner. The profit is claimed as income on the owner’s annual tax filings. * Liability: Because there is no legal separation between an owner and the business in a sole proprietorship, the business owner is unlimitedly liable for any debt or fault of the business. Even if the sole proprietorship dissolves, the owner will be liable for the debt. If the debt is not taken care of in a timely manner it will could affect the owner’s credit rating and lead to future earnings being garnished. * Income Taxes: Taxation of a sole proprietorship happens once, at the income level of the owner. Any profit made by the company is considered an...
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...Questions 1. Describe the basic features that distinguish the four basic forms of business ownership: sole proprietorships, general partnerships, C corporations, and limited liability companies. Sole Proprietorships: One Owner. Personal income will become taxed in business General Partnership: Two or more people can share profits and liabilities; it is the same as sole proprietorship C Corporations: Pays Federal and state income taxes on earnings Limited Liability Company: Hybrid between partnership and a corporation, combining limited liability advantage of a corporation with tax status. 2. Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC? 3. How do limited partnerships and limited liability partnerships differ from general partnerships and from each other? 4. What advantages help explain why virtually all large companies are organized as C corporations? 5. What steps are involved in forming a C corporation? 6. Describe the relationship between a corporation’s common stockholders, its board of directors, and its chief executive officer (CEO). 7. How does a merger differ from an acquisition? What is the difference between a horizontal merger or acquisition and a vertical merger or acquisition? Give a real world example...
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...decision making process. Sole proprietorship, partnership, and corporation are a couple of the main business structures that where mentioned in the videos. Sole proprietorship Sole proprietorship is the easiest and most popular form of business structure with a multitude of advantages and disadvantages. A plus is that a sole proprietorship is the simplest and least expensive form of business structure an individual can establish ("SBA.gov," 2014). In a sole proprietorship the owner of the business has complete and total control over all of the decisions made for the company without the interference of anyone else. In terms of taxes, the business is not separate from personal taxes with the rates being the lowest of all business structures. On the other hand, there are also disadvantages to a sole proprietorship. Because there is no separation between personal and business, the owner of the company is liable for all obligations and debts of the business with no exceptions. Therefore the sole proprietor alone has to take full responsibility for not only the success of the business but the failure as well. Partnership Unlike a sole proprietorship, a partnership has two or more owners of the business. There are also two different forms of partnerships, general partnership and limited partnership, with the difference being the liability the partner has in the business. A partnership is easy and inexpensive to form, a lot like a sole proprietorship. Each partner in the...
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...Part A: SOLE PROPRIETORSHIP: This business type is basically a business with one owner. Give a company a name and starting a sole proprietorship is simple. With this type of business all profits are the owners, but the burdens and liabilities are also the owners’ responsibilities. * LIABILITY- The liabilities are extremely high, from personnel injuries, to debt unpaid. If any part of your business suffers financially and not dealt with, the personal assets of the owner can subject to being taken to cover any unpaid bills accrued. * INCOME TAXES- The tax rates and fees of a sole proprietorship are much lower. As a sole proprietorship personal incomes and business income taxes are filed as one. * LONGEVITY/CONTINUITY- If the profits of the business are high and well ensured the length and success can be high. Although the length of the business merely depends the owner. * CONTROL-The owner is the only one the holds the power and control. All decision makes comes from only the owner of the proprietorship. * PROFIT RETENTION- All income produced by sole proprietorship has to be reported to the IRS as income whether it is used for the business or for personal use. Either way the profits can be spent any way the owner wishes. Profits don’t have to be shared. * LOCATION- In the state of Washington the costs of a sole proprietorship are low. There are no legal required documents to file to begin business. Although form-filling must be done in order to operate...
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...Sole Proprietorship: Sole proprietorships are businesses that are owned and operated by one person. The business and the owner are one and the same, as there is no legal separation between the two. The owner would only have to register as a business if he were to operate under a fictitious name or if they provided services requiring a license. * Liability: As there is no legal separation between the owner and the business, 100% of the liability is on the owner. He or She would be responsible for all debts, accidents, losses, etc. * Income Taxes: Aside from having to file a Schedule C, the owner would file income taxes normally. Because the owner and the business are one, all profits or losses are reported through their personal income tax forms. * Longevity or Continuity of the Organization: The continuity of a sole proprietorship hinges on the wellbeing of the owner. The company and the owner are one, so neither can exist without the other. In very rare circumstances, proper legal documents can keep the company alive in the event of the owner’s death. However, it is unlikely to continue in most cases. * Control: Sole proprietorships are convenient because they provide the owner with full control. The owner can make any decision necessary without having to get any approvals or permissions. * Profit Retention: Profits are normally kept by the owner and can be put back into the business for growth or kept for personal gain. * Location: While the sole proprietor...
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...structures. These structures include sole proprietorship, general partnership, limited partnership, C-Corporations, and S-Corporations. These structures each have advantages and disadvantages, depending on the particular situation or desired effects the business owners may have. It is imperative that owners understand the differences so they can choose the best organizational structure that fits their business needs. * Sole Proprietorship * One of the most common, easiest, and cost-effective organizational structures is a sole proprietorship. This form consists of one owner, and does not have any distinction between the business and the owner. Although sole proprietorships may seem less complex, it has disadvantages as well. * Sole proprietorships have several advantages and disadvantages as listed: * Liability – Sole proprietorship does not differentiate between the business and the owner. Sole proprietorships are liable for all losses. If the company were to get sued, the owner’s personal assets would also be at risk. The owner must file as a business if they are using a fictitious name; even if a company files a doing business as, also known as DBA, there is no legal separation of assets * Income Taxes – The owner pays taxes on the profits made with their personal income taxes by filing a Schedule C (Profit or Loss from Business) which is included with the owner’s tax form 1040. * Longevity/Continuity - Because a sole proprietor has one owner, they...
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...continuation of said business. Running a business can be an exciting endeavor, but I would recommend to anyone before they start, to have everything legally in order for all the different kinds of situations you can find yourself in. Sole Proprietorship- The simplest form of business, a sole proprietorship is the most common form of business in our country. Be it because it can be managed by a single person; or perhaps it’s the lack of agreements and formalities needed for the business to run, sole proprietorships are able to operate on a small scale and responsibilities fall on only one person. In a sole proprietorship, only one person is needed for the capital and credit to start the business, and possibly that’s why we American Dreamers have turned it into the most common form of business used in this great country. What distinguishes this form from the rest, is the unshared responsibility of the owner. Characteristics of a sole proprietorship, to be considered by the owner: Liability, The owner of a sole proprietorship has unlimited personal liability, however the sole proprietor can insure against most risks and operate with near the same level of comfort as the owners of a corporation. Income Taxes, a sole proprietorship has as pass- through taxation, meaning the...
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