Sole Proprietorship A sole proprietorship is an unincorporated business owned by one person. It is the simplest and most common type of business. It is attractive to a business owner because it is simple and offers the owner the freedom to make the business decisions and keep all of the profits. That may also serve as a draw back because the owner has to rely on themself for capital, knowledge and liability. A sole proprietorship does not need to meet any requirements to start. It is not required to register as a business unless it operates under a fictitious name (DBA), or provides services or supplies.
-Liability- The proprietor is personally responsible for all of the business’s liabilities. They have no legal protection if the business fails. Creditors may pursue the owner personally for repayment. The owner may be sued personally as well.
-Income Taxes- The sole proprietor will file their taxes for the company and themselves on a 1040 with a schedule C on their personal taxes. All profits and expenses belong to the owner personally.
-Continuity- Unless stated in the owners will and planned ahead for, then the business will end if something detrimental were to happen to the business owner. It is important to have life insurance so the business owner’s family will not suffer from the loss of income.
-Control- One tremendous benefit of sole proprietorship is the business owner’s control of the business decisions. They get to make all of the decisions that affect the business.
-Profit Retention- Another attractive benefit of sole proprietorship is that the owner does not have to share any of the net gains of the business.
-Location- A sole proprietorship is generally small and run by the owner. They must follow the laws of the state in which they operate.
-Convenience or Burden- A sole proprietorship is simple and needs very little paperwork to get started. It may be difficult for the proprietor to obtain loans. They have to use personal funds and it can be difficult to get approved for the loans they may need.
General Partnership When two or more people or corporate owners form an oral or written agreement to combine their skills and resources then they have a partnership. All partners are actively involved in management, equally responsible for debt and share in the profits.
-Liability- Each partner is personally liable for the decisions of their partners. They are liable for the business’s debts. If something happens to cause the business to fail, any debt not covered by the companies assets will become debt to the other partners personally. Even just one of the partners could be forced to pay all of the companies debts.
-Income Taxes- A partnership is much like a sole proprietorship in that the business is not a separate entity and does not have to pay taxes. The partners must file a 1065 to report income and deductions then the net income, whether or not distributed, is passed through to each partners personal income taxes. Partners may also use the companies losses to offset all of their income for tax reasons.
-Continuity- A partnership may be dissolved at any time. Partners may not give away or sell their interest in the partnership or allow another person into the partnership without everyone in the partnership agreeing. The company would need to be dissolved and become a new entity. If one of the partners were to die or for any other reason their role in the partnership could not continue, then the partnership will be dissolved and the equity distributed.
-Control- Partners need to agree on the management decisions of the business and the distribution of assets and debt before beginning their partnership. Each partner is actively involved in management and is an agent for all of the other partners. If there are more then two partners then usually the majority will rule.
-Profit Retention- Partners...