LIT1 – Task 1 Part A
SOLE PROPRIETORSHIP: A “for profit business” owned and operated by an individual. Owning a sole proprietorship allows an individual to run a business any way they see fit with few state/federal regulations and limited legal formalities. The owner of a sole proprietorship assumes considerable risks by without liability protection and therefore is held personally liable for any judgments against the company and is susceptible to loss of business assets, personal property and real estate. Liability: The business and the owner are considered one entity. A sole proprietor will be held personally responsible for any debts, profit, or lawsuits that arise during the operation of the business. They are also personally liable for the acts or misconduct of any employee or company representative during business operations. Income Taxes: The business owner is liable for taxes on the business’ total profits even if some or all of those profits are invested back into the business. Taxes for a sole proprietorship are filed on the owner’s individual tax return in addition to self-employment tax. Longevity/Continuity: A sole proprietorship is dissolved when the owner opts to close the business, retires or passes away. Essentially the business dies with the owner, sometimes making a sole proprietorship a stepping stone in organizing a growing business. Control: The owner assumes absolute control of the business. Profit Retention: The owner retains all business profits and is responsible for all business related losses. Location: A sole proprietorship can be located anywhere providing the owner abides by the state and local regulations. If an owner decides to move a sole proprietorship into a new location it is best to contact the local city hall to determine what permits will be needed. Convenience/ Burdon A sole proprietorship is simple to establish because it requires little paperwork, and the owner maintains complete control of decisions regarding the business. Dissolving or selling the business is also an easy process for the owner. The owner does not pay corporate tax but their individual income taxes may be increased based their new tax bracket. Financial funding for a sole proprietorship can be difficult to secure. Since the owner is held personally liable in all aspects of a sole proprietorship- if the venture fails, the owner places business assets, personal assets and personal investments on the line.
General Partnership: A general partnership is a business in which two or more people share the profit, losses and management of day to day operations as co-owners. General partnerships are typically simple and inexpensive to create and dissolve. In a general partnership all partners are personally responsible equally for business debts and liabilities regardless of which partner approved specific situations. Liability: Each partner is personally liable equally for any debts, or judgments within the partnership. All partners’ personal assets can be seized if the business cannot cover debts or lawsuits. A partner would also be required to cover a shortfall of another financially irresponsible partner. Income Taxes: A partnership is required to report profits and loss, however the business entity itself is not taxed. As with a sole proprietorship, all profits and losses are passed to the individual partners and must be filed on their individual tax returns in addition to any self-employment taxes. Longevity/ Continuity: A general partnership is continued until one of the partners passes away or withdraws from the partnership. If one partner decides to sell his interest in the company a new partnership must be established with the buyer. CONTROL – Each partner has equal amounts of control within the company unless a formal written agreement is in place within the partnership. PROFIT RETENTION – A general partnership agreement can determine how profits (and losses) are shared, but without a formal...
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