Feb 4, 2013
Legal forms of Business
There are many ways to organize a business including sole proprietorship, partnership, corporation, S Corporation, Limited Liability Company, franchise and joint venture. Each form has its advantages and disadvantages and each has its own requirements and may be taxed differently. When starting a business the entrepreneur needs to look at all options to decide which would fit their business plan best. Factors to evaluate include cost of formation, capital requirements, flexibility of management decisions, government restrictions, personal liability, and tax considerations. (Cheeseman, Chapter 34: Small Businesses, Entrepreneurs, and General Partnerships, 2010)
Sole proprietorship scenario: Scrap booking store
A small scrap booking store could be successful run by a sole proprietorship. There is very little liability in a store like this and since startup costs are low, not much in loans or capital would be needed. A solo owner should be able to make all management decisions in a company of this intensity and size. Or has option to hire and pay a manager to take care of the store when not available to be there. If the scrap booking store fails to be successful it would easily be transferred or sold but owner does risk a loss. There are few other risks using a sole proprietorship in this scenario and if grew too large or wanted to expand could always in the future. A sole proprietorship is not a separate legal entity so does not pay taxes at the business level. (Cheeseman, Chapter 34: Small Businesses, Entrepreneurs, and General Partnerships, 2010) Instead they file as personal income tax using form 1040, schedule C with all profits and losses reported on a personal level.
Partnership scenario: Small Technology fix-it business
A small technology fix-it business would be best run by a partnership. Joining two or more people’s talents and strengths will help a...