Lit Task 1

Topics: Corporation, Types of business entity, Partnership Pages: 6 (1732 words) Published: February 24, 2013
Sole Proprietorship: The most common form of business in the United States. A business operating under Sole Proprietorship is run only by the owner of the company. All decisions are made solely by the owner without the need to have legal consultation. The business only needs to register the business name with the government if the owner choses to use a business name rather than his/her personal name. Liability- All liability is held with the business owner. Sole proprietorship has unlimited liability and the owner will be held responsible in all levels including, financially. Because this type of business is funded by the personal owner, he/she may be required to give up personal property if the business were to fail. Even if the cause for failing were due to unforeseen circumstances such as declining market conditions or an employee’s injury due to his own negligence.

Income taxes- All taxes are reported under the individual owner instead of the business, which can result in a higher tax obligations without proper planning on the owner’s part.

Longevity or Continuity of the Organization-Funding for a sole proprietorship is difficult to obtain from banks or other financial institutions, if funding is provided by these organizations it is common that the owner must put us his/her personal property. The longevity of a business is usually determined by the companies’ access to funding. In the case of a sole proprietorship all funding is the responsibility of the owner, making it difficult to forecast amounts needed to continue running the business. It may also limit the ability for this type of business to expand.

Control- The business owner has all control under a sole proprietor; he/she can pick their own operating hours, charges for services, choose to contract work out, hire employees, and spend all monies freely. It is also important to note that the business will usually end if the owner were to become Ill or die.

Profit Retention- All profits for the business go directly to the owner.

Location- Different states hold different laws in which a company is to operate. Including what type of licenses or permits are needed to provide certain services. A business running as a Sole Proprietorship will be responsible for each type of permit or license requirement in each state the business operates. The owner may need to comply with additional requirements to obtain permits and/or licenses in different states, resulting in additional financial costs.

General Partnership: A business operated by two or more individuals working together under written or verbal agreement, all parties are equally responsible for all loses and liable for debts. Profits are shared and split based on agreements between the involved parties. Liability- The owners of a business operating under general partnership are equally held liable for any business decisions resulting in loss or gain, regardless if only one person made the decision. All owners are held responsible for all debts occurred.

Income Taxes- Similar to the tax situation of a sole proprietorship; general partnerships are also taxed on an individual level; owners are to provide each person’s individual earnings and no business taxes are filed. However, a partner can report total income and losses by filing an informational return. This may result in lower tax obligations.

Control- Under general partnership each person can make decisions for the company without all parties present. There are no formal guidelines to this type of business practice, unless the partners outline details in some type of business agreement.

Profit Retention- All profits and losses are equally shared by the partners unless otherwise stated and outlined in an agreement between each person.

Longevity or Continuity of the business- A general partnership of more than two can continue operating after the agreement ends. The partnership can end with a buy/sell agreement for the...
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