Corporation and Profit Retention

Topics: Corporation, Types of business entity, Corporate tax Pages: 8 (2281 words) Published: January 22, 2013
LIT 1 Task 1 A
Chris Wilganowski
Student # 000277508

Sole Proprietorship: This is by far the most common form of business. It is the most common because it is the easiest to form. In order to create this type of business one simply has to “hang their shingle out” and let the commerce commence. However with such limited oversight also comes unlimited liability.

Liability- Liability exposure with sole proprietorships is a huge draw back.. The owner and the business, legally, are one and the same. This leaves all the owners property ( and the business assets since they are one and the same) at risk.

Income Tax- There are no real tax advantages at this level. It is known as a “pass through” entity. The income that is generated passes through the business to the owner. Taxes are paid at the individual level.

Longevity- Unless the owners will provides specific direction in the contrary, the business is directly linked to the owners health. Since the owner and the business are legally indistinguishable from one another when the owner dies the business also dies.

Control- Unlimited control is another attractive quality of Sole Proprietorships. Since legally there is no separation you may do with the company as you see fit. From what services are offered to what the logo looks like all decisions are the owners to make.

Profit Retention- Since the owners efforts alone are responsible for the amount of profit generated, they keep it all. After the employees ( if any ) are paid what is left is the owner’s. Because they have total control, they may reinvest it in the company or they make take it all out.

Location- Since there is no legal paperwork filed with any state agency, moving locations is as simple as driving to another state and setting up shop. That being said if you required state license in the original state, you would need the equivalent in the new location.

Convenience/Burden- There are no legal documents that need to be filed with any state agency. Owner and company are indivisible so there is no paper work saying otherwise. At the most you may need to file a Doing Business As (D.B.A. ) with your local tax office to allow you to open a bank in the company’s name.

General Partnership: This type of company is usually formed when two or more individuals with different skill sets get together. Each participant brings with them their own experience and skills in order to create a new venture. While the liabilities are not bore alone, the partners are not sheltered from them.

Liability- While they are split in a predetermined percentage, the liabilities of a General partnership are unlimited. There is nothing that is off the table including your personal assets.
Income Tax- There is no real tax shelter provided at this level. Income that is generated is “passed through” to the partners. They will pay taxes at the individual level. There are however, various tax forms that need to be filled out.

Longevity- When a partner dies the partnership ceases to exist. The partners may not pass on the original partnership agreement to their heirs. There may be a buy/sell clause in the articles of partnership.

Control- Complete control is given up to a vote of the general partners. If there is no consensus made, the articles of partnership should dictate how the disagreement is handled.
Profit Retention- After the business debts are paid, the partners split the net profit. The articles of partnership will usually dictate the percentages, and if no mention is made it is assumed it is split evenly.

Location- The fact that a partnership is not it’s own legal entity makes it relatively easy to move. If there is a market in a new location there is very little that prohibits moving.
Convenience/Burden- While no state/federal documents are required, you will need an “Articles of Partnership” drawn up. This will act as the bylaws/charter for decisions and operations moving...
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