Task 310.1.2-01-06 Part A
In This form of business organization the owner and the business are considered the same entity. Sole Proprietorships are the easiest type of business to form and dissolve. The owner has the benefit of all decisions made are at their sole discretion but also can suffer from the drawback of unlimited liability. The owner is completely responsible for all debt and expenses incurred by the business. The business and owner being one in the same leaves the owners personal assets reachable to creditors if the business were to fail and not be able to pay its debts. All income generated by the business in considered personal income and is filed on the owners individual income tax return. The business ceases to exist when the owner becomes deceased or if the owner decides they no longer wish to continue the business. A sole proprietorship cannot be passed on to heirs or other transferred to another person. Owner has one hundred percent control of all functions of the business and what is required in its daily operations. They can choose to hire others to assist in the daily functions but all management decisions are made by the owner.
Sole Proprietorships do not require any federal forms to be filed or approved so this form of organization can be moved to another location at the will of the owner. Local and state permits may be the only registration or fees required for the owner to obtain and pay. The financial burden of startup costs for the sole proprietor can make it difficult for this form of business to succeed. Often the owners become overwhelmed with debt because of high interest rates on loans from banks or maxed out credit cards. The convenience of complete autonomy in the business and not being subjected to countless rules and regulation requirements before the business can become operational makes this form of organization very convenient
General Partnerships are another easily formed and dissolved type of business organization. They can be formed with as little as a verbal agreement but are usually done when partners agree to terms set forth in an Articles of Partnership contract. Partnerships must register with the Secretary of State office in the state it will operate. All partners are equally and jointly liable for any partnership debts and obligations. The decision of one partner on a matter does not excuse another partner from being held equally accountable if it proves to be a bad decision or malpractice even if the partner is unaware of the situation. Same as a sole proprietorship a partners personal assets are subjected to being taken by creditors if the partnership cannot pay its debts.
No federal taxes are imposed on a partnership since it is not a separate legal entity from its owners. A partnership must file an information return reporting gross income, business deductions and net taxable income. Owners file individual income tax returns on their share of the profits even if they are not actually received. Any losses can be used by partners to offset any personal income they receive from outside sources.
A partnerships existence will end when a partner decides to withdraw or becomes deceased. A buy sell agreement must be contained in the Articles of Partnership if there are more than two partners if they wish for the business to continue without the withdrawing or deceased partner. Each partner has equal authority and voice in management unless otherwise stated in the contract. Majority rules when there are more than two partners.
Profits are divided among partners based on the amount of capital invested which should be clearly stated in the Articles of Partnership. Partnerships are just as easily relocated as a sole proprietorship with the exception that all partners must be in agreement to relocate. If they want to relocate they simply move and register in the new location by filing a...
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