Business Forms and Attributes

Topics: Corporation, Types of companies, Legal entities Pages: 11 (3347 words) Published: September 21, 2012

Forms of Business Organizations and Their Attributes

2 Forms of Business Organizations And Their Attributes Sole Proprietorship A sole proprietorship is the easiest business organization to form because ownership consist of a single individual. The sole proprietor has ultimate control over the focus and direction of the entire business. This feature sets the sole proprietorship apart from all other business organizations. The advantages of a sole proprietorship are that the only paperwork the sole proprietor needs to be concerned with, when forming the business, is state and local permits, licenses, and any special certificates that might be needed. No other legal actions need to be taken for a sole proprietorship to be established, saving time and money. The disadvantages of a sole proprietorship are that the individual owner is personally liable for the activity of the business. The personal assets of the owner may be required to satisfy any outstanding debt. Credit can also be an issue, when it is time for the business to expand, because loans will be based solely on the credit worthiness of the owner. Lack of capital for sole proprietorships can actually limit the scope and opportunities for the business. The attributes of a sole proprietorship are: • Liability-The owner of a sole proprietorship assumes total liability for the organization. He is responsible for the assets along with the liabilities that may accrue over the life of the business. Nothing distinguishes the owner from the business itself. Income Tax-There is no double taxation of a sole proprietorship, like there can be with other forms of businesses. Any income of the owner and profits of the business are taxed together. Form 1040 and the Schedule C are used to tax the owner and the business as a unit. Good record keeping is a must to insure that personal income is separated from business income. Longevity or Continuity of the Organization-The greatest disadvantage of a sole proprietorship is its lack of continuity as an organization. Because a sole proprietorship is linked directly to the owner there is no perpetual existence. The sole proprietorship generally will cease upon the death the owner. Retirement and disability also can bring the sole proprietorship to an end. Control-The decisions of the organization are the responsibility of the owner alone. The sole proprietorship insures that the owner has complete freedom of action. The owner can do whatever he thinks best at any moment without consulting anyone else. Profit Retention-All profits of the sole proprietorship belong to the owner. Just as the owner takes on all the risk of the business, he also reaps all the benefits. The owner determines how the profits are to be used. The owner may use profits for his own personal use or of for the benefit of the business for further expansion and growth. Location-Sole proprietorships have great mobility. A sole proprietorship can move freely from one state to another with the owner. Since sole proprietorships are not incorporated no special paperwork is required besides that of state and local permits. Convenience or Burden-There are few regulatory requirements for sole proprietorships. The cost for start-up and reporting is the lowest of any business organization. Convenience of the sole proprietorship is the prominent reason why most entrepreneurs begin their business as sole proprietorships.

3 General Partnership A partnership is formed when two or more individuals (including corporate entities) combine their resources and abilities to form a single business. In a general partnership, the partners all share in the responsibility of the business and its management. Each partner has a full voice in the activities of the partnership and speaks as an agent for each partner within it. If the partnership consist of more than two partners, the majority decision is usually followed.The agreement that establishes the...
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