LIT1 Task 310.1.2-01-06
Sole Proprietorship: A sole proprietorship is owned by only one person. All profits and losses are the responsibility of the owner only. Liability – There is unlimited liability in a sole proprietorship. The owner is solely responsible for any debts that may occur. Income Taxes – The business files taxes as one single unit. Because profits are not shared, they are considered personal income to the sole proprietor. Longevity/Continuity – In a sole proprietorship if the owner dies or quits, the business dies as well. The only exception would be if the owner states in his or her will that the business can continue. Control – The owner has complete control in a sole proprietorship. Profit Retention – The owner retains all profits.
Convenience/Burden – The owner can start doing business as soon as they like. If the owner wishes to operate under a fictitious name a D.B.A (Doing Business As) will need to be filed. Some forms of business my require permits or licenses. General Partnership: A business owned and operated by two or more people that share gains and losses. Liability – There is unlimited liability in a general partnership. The owners/partners are responsible for all profits and losses. If one partner is unable to pay a debt the other partners will be accountable to pay. Income Taxes – Taxed the same as a sole proprietorship. Each partner reports their earnings on their own personal income tax filing. The partnership itself is not taxed separately. Longevity/Continuity – The partnership dissolves if one of the partners dies or decides to quit for any reason. If there is a buy/sell agreement in place the remaining partners may purchase that partners shares from him/her or their heirs. Control – All partners have equal control of the business unless otherwise stated in the articles of partnership. Profit Retention – All profits are divided equally between the partners unless otherwise stated in an agreement. Convenience/Burden – Partnerships can be created with an oral or written agreement. The agreement is called the articles of partnership which maps out how the partnership will be ran. Limited Partnership: Contains limited and general partners. Limited partners are not allowed to manage any part of the business and they possess limited liability. Liability – Limited partners have limited liability and are only accountable for the amount they have invested into the business. The general partners have unlimited liability. Income taxes – If the limited partnership begins to take on characteristics of a corporation then it could be taxed as such. General partners are able to write off business expenses but limited partners cannot. Longevity/Continuity – If a general partner dies so does the business unless the agreement between partners says different. If a limited partner dies the partnership will continue. The executor of the estate would receive the entitled portion of profits and assets in order to settle the estate. Control – General partners control the business while limited partners act as investors. Limited partners must refrain from making any management decisions. Profit Retention – Limited partners receive an agreed upon amount of the profits that is determined in the partnership agreement. The general partners divide all profits. Convenience/Burden – The partnership agreement will explain the ins and outs of the partnership. C Corporation: Also known as closely held corporations. They are considered a legal entity that is separate from the owners. They can have an unlimited amount of shareholders. Liability – Stockholders are only liable for the amount of their investment. The corporation itself is liable for any debts incurred and is responsible for actions of the employees. Income Taxes – Because corporations are a separate legal entity they are subject to federal, state, and local taxes. Shareholders are taxed on the dividends they...
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