Business Types

Topics: Corporate tax, Corporation, Taxation in the United States Pages: 10 (3649 words) Published: May 13, 2013
​There are five main types of businesses in America. These five types of businesses are Sole Proprietorship, Limited Liability Company, Cooperative, Corporation, and Partnership. Each type of business effects the government and economy in several different ways; either working to better the economy and government or working against it. The way each business works is quite similar, they all work together to accomplish the same goal; to make a successful, plentiful business worth a lot of money. ​The first type of business to describe is Sole Proprietorship. This is the easiest type of business to set up and the most common. It is a business owned and run by one individual outside of a corporation with no difference between the business and the owner. The business owner is entitled to all of the business’s profits and is responsible for all debts, losses and liabilities. When forming Sole Proprietorship, no formal action is taken only if you are the only owner; this distinction automatically comes from the business action. In fact, one may already be owned without even knowing it. If someone is labeled as a freelance writer, for example, he or she is then, a sole proprietor. But, it’s not all that easy. A sole proprietor must also sort through and figure out all of the permits and licenses required to run their business legally and efficiently. Regulations usually vary by industry, state and locality. If it is chosen to operate under a name different than that of the owner’s, they will most likely have to file a fictitious name (this could also be known as an assumed name, trade name, or DBA name, which stands for "doing business as"). The name must be original; it cannot be one that is already claimed by another business. ​Another topic to discuss about sole proprietorship is taxes. Because the business owner and the actual business are one in the same, the sole proprietorship is not taxed separately since the business’s profits are your profits as well. They must report income, losses, and expenses with a Schedule C and standard form 1040. The final amount from Schedule C transfers to the sole proprietor’s personal tax return. It is their personal responsibility to withhold and pay all income taxes (note that self employment and estimated taxes are included). ​There are many advantages and disadvantages to running a sole proprietorship. Some of the advantages of a Sole Proprietorship is they are easy and inexpensive to form. The owner (being the sole proprietor) has complete control over the business, and there is easy tax preparation. Since Sole Proprietorship is easy and inexpensive to form, it is the simplest structure for the establishment of a business. The costs are low, and the only legal expenses are those costs that are necessary for obtaining licenses and or permits. Having total control over the business is a tremendous advantage because as the sole owner of the business, they have complete authority over all the decisions made within the business. So if a change is wanted or necessary, the owner has every right to make the adjustment needed to fit the business to their personal standards as the sole proprietor. ​There are also some disadvantages to owning a sole proprietorship as well. A few of these are; unlimited personal liability, and how much harder it is to raise money to maintain necessary capital. Because there is no legal separation between the business and owner, they can be held personally responsible for the debts and obligations of the business they own. Even though, in some cases, these liabilities are acquired as a result of employee actions. Sole proprietors most often go through the challenges of attempting to raise enough funds or profits to sustain their personal business. Banks are also hesitant to lend to a sole proprietor because of a perceived lack of credibility and when it’s time for the owner to repay, the business, most of the time, fails. This is a heavy burden and great deal of...
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