LIT 1 Task 1
A sole proprietorship is the most common type of business in the United States. It is formed when a person starts a business, but does not register it as a corporation, or a limited liability company. Most contractors, consultants, and home businesses operate under this form of business. Sole proprietorships are easy to form, and provide the owner with total control over the business. All of the profits belong to the owner, because the business and the owner are one and the same. Taxes are easier with this type of business since all profits or losses are filed on the owners individual income taxes. The owner may operate the business under a fictitious name as long as the appropriate forms have been filed, and the initials d.b.a. is used. There are some serious disadvantages also. The owner is responsible for all of the liability, and has none of the common tax shelters that corporations do. Loans can be hard to obtain because banks view them as personal loans, and if the owner of a sole proprietorship dies, the business dies with them.
Liability: The owner has unlimited liability. If the business fails the owner is responsible for 100% of the debt, and may be sued. The owner’s personal property may be liquidated to pay for debt.
Income Taxes: Income taxes are generally easier to file with a sole proprietorship, since the profits or losses are filed on the owners individual income taxes. However, a sole proprietorship gets none of the common tax shelters that corporations enjoy.
Longevity or Continuity of the Organization: A sole proprietorship lasts until the owner dies, or no longer wishes to be in business. It cannot be sold or passed on to heirs.
Control: The owner has complete and total control in this type of business. All of the decisions involving the business are the owner’s responsibility.
Profit Retention: Any and all profit made by the business belongs to the owner. The reason for this is because the owner and the business are the same.
Location: A sole proprietorship business may be in any location. They may be at shops, stores, homes, or even mobile locations. Expansion may be difficult because funding may be hard to obtain.
Convenience or Burden: Sole proprietorships are convenient because they are easy to establish, and the owner has control. Some of the things that make this type of business a convenience can also be a huge burden, especially if the owner has poor record keeping and accounting skills.
A general partnership is a business with more than one owner that has not filed the papers to become a corporation, or a limited liability company. A general partnership is very easy to form. All it takes is an agreement between more than one owner to share joint responsibility for a business. This agreement can be verbal, or it can be by written contract. All of the profits belong to the owners, because the business and the owners are one and the same. Taxes are easier with this type of business since all profits or losses are filed on the owners’ individual income taxes. The biggest disadvantage of a general partnership is that each owner is jointly liable for the partnerships’ debts. One owner can be completely honest, while the other can be making bad or illegal business deals, and it can cost them both dearly.
Liability: Every partner is jointly and severally liable. If the business fails, or if one partner is making bad business decisions, every partner may be held responsible. Each partner may be sued, and be forced to sell or liquidate personal property because of the actions of another partner.
Income Taxes: The taxes for a general partnership are filed on each owners individual taxes. This is because the owners and the business are one and the same.
Longevity or Continuity of the Organization: A general partnership is dissolved when one of the partners leaves the...
Please join StudyMode to read the full document