WGU LIT1 Task 1

Topics: Corporation, Corporate tax, Limited liability company Pages: 6 (2116 words) Published: December 3, 2013
This is the simplest business structure of which the owner has total control. The owner can make up a fictitious name or use the same name for the business. Sole proprietorship is easy to set up at a minimal cost. The business owner does not need to follow rules or regulations of others but their own and can set up their own schedule. Proceeds can be directly deposited into the owner’s bank account and the funds are freely allocated between business and personal accounts. The sole proprietor, however, is a subject of unlimited liability for debts, losses and other business obligations when the business goes sour. The business owner also faces challenges in raising capitals from investors because there are no stock options. Banks are reluctantly to make loans to these businesses due to the perceived lack of liability to repay the loans. I. Liability: the business owner is held responsible and liable for all business debts and losses when business goes under. A creditor may also go after your business to satisfy the unpaid personal debts. Besides the debts, the sole owner is also responsible for any damages, injuries that occur as result of any omission or negligence of the business. II. Income Taxes: the business owner doesn’t need to file separately for personal and business income tax returns. The business owner also can claim deductions on their business. III. Longevity/Continuity: business existence depends on the owner. When the owner dies, the business dies. IV. Control: the sole owner has the full control of the business from financing planning, personnel to projects and schedules. The sole owner is his or her own boss. V. Profit Retention: Business proceeds translate into personal income for sole proprietorship. The owner can withdraw the funds for personal use or retain them in the business account. It is entirely up to the sole proprietor’s choice. VI. Location: a sole proprietorship business can start anywhere at home, a small office or even a computer and the internet. VII. Convenience/Burden: a sole proprietorship business is easy to start and the business can take place anytime and anywhere after a simple registration process with the municipality. However, this kind of business is hard to expand and faces challenges of attracting investment. B. PARTNERSHIP:

Partnership is another form of business structure where two or more people co-own the business. Each partner contributes money, labor, property or skill and, in return, the partners share in the profits and the losses of the business. This kind of business is inexpensive and rather easy to set up when the partners agree on the terms of business. The partners can rely on each other’s strengths and skills to operate the business together. With the shared responsibility, the partners can raise capital or apply for loans more easily. The partners, however, might face some disagreement and differences in operating their business. They also need to pay attention to the shared profits because unequal distribution can create discord among the partners. I. Liability: all partners are personally liable for the debts of the business. Creditors can go after any partner when they want to remunerated. II. Income taxes: partnership business form is not a separate tax entity. Each partnership has to report their incomes on their personal income tax returns. III. Longevity/Continuity: partnership ends when one of the partners dies or withdraws from the business. IV. Control: the partners have the full control of their business when agreements are easily reached. Business continues or gets transferred when a partner withdraws or dies depending on the initial agreements. V. Profit Retention: profits are distributed between the partners. Losses and profits are filed through personal income tax return. VI. Location: partnership organization is easy to form and it doesn’t require the partners to file a formal business agreement with...
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