Scribd
Upload
50 views4 pages

Sole Proprietorship: Your Company's Form Will Affect

The document discusses the four main types of business organizations: sole proprietorship, partnership, corporation, and limited liability company (LLC). It provides details on the characteristics of each type, including their advantages and disadvantages related to taxation, legal liability, costs, and ownership structure. A sole proprietorship is owned by one individual and ends when they die, while partnerships can be owned by two or more individuals but they each assume full liability. A corporation is a separate legal entity that limits owner liability but is double-taxed, and an LLC combines advantages of partnerships and corporations by limiting liability while avoiding double taxation. The business organization type chosen affects taxation, legal issues, costs, and the company's future.

Uploaded by

Pauline Apilado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
50 views4 pages

Sole Proprietorship: Your Company's Form Will Affect

The document discusses the four main types of business organizations: sole proprietorship, partnership, corporation, and limited liability company (LLC). It provides details on the characteristics of each type, including their advantages and disadvantages related to taxation, legal liability, costs, and ownership structure. A sole proprietorship is owned by one individual and ends when they die, while partnerships can be owned by two or more individuals but they each assume full liability. A corporation is a separate legal entity that limits owner liability but is double-taxed, and an LLC combines advantages of partnerships and corporations by limiting liability while avoiding double taxation. The business organization type chosen affects taxation, legal issues, costs, and the company's future.

Uploaded by

Pauline Apilado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Business organization is the single-most important choice you’ll make

regarding your company. What form your business adopts will affect a
multitude of factors, many of which will decide your company’s future.
Aligning your goals to your business organization type is an important step, so
understanding the pros and cons of each type is crucial.

Your company’s form will affect:

 How you are taxed


 Your legal liability
 Costs of formation
 Operational costs

There are 4 main types of business organization: sole proprietorship,


partnership, corporation, and Limited Liability Company, or LLC. Below, we
give an explanation of each of these and how they are used in the scope
of business law.

Sole Proprietorship
The simplest and most common form of business ownership, sole
proprietorship is a business owned and run by someone for their own benefit.
The business’ existence is entirely dependent on the owner’s decisions, so
when the owner dies, so does the business.

Advantages of sole proprietorship:

 All profits are subject to the owner


 There is very little regulation for proprietorships
 Owners have total flexibility when running the business
 Very few requirements for starting—often only a business license

Disadvantages:
 Owner is 100% liable for business debts
 Equity is limited to the owner’s personal resources
 Ownership of proprietorship is difficult to transfer
 No distinction between personal and business income

Partnership
These come in two types: general and limited. In general partnerships, both
owners invest their money, property, labor, etc. to the business and are both
100% liable for business debts. In other words, even if you invest a little into a
general partnership, you are still potentially responsible for all its debt. General
partnerships do not require a formal agreement—partnerships can be verbal or
even implied between the two business owners.

Limited partnerships require a formal agreement between the partners. They


must also file a certificate of partnership with the state. Limited partnerships
allow partners to limit their own liability for business debts according to their
portion of ownership or investment.

Advantages of partnerships:

 Shared resources provides more capital for the business


 Each partner shares the total profits of the company
 Similar flexibility and simple design of a proprietorship
 Inexpensive to establish a business partnership, formal or informal

Disadvantages:

 Each partner is 100% responsible for debts and losses


 Selling the business is difficult—requires finding new partner
 Partnership ends when any partner decides to end it

Corporation
Corporations are, for tax purposes, separate entities and are considered a legal
person. This means, among other things, that the profits generated by a
corporation are taxed as the “personal income” of the company. Then, any
income distributed to the shareholders as dividends or profits are taxed again
as the personal income of the owners.

Advantages of a corporation:

 Limits liability of the owner to debts or losses


 Profits and losses belong to the corporation
 Can be transferred to new owners fairly easily
 Personal assets cannot be seized to pay for business debts

Disadvantages:

 Corporate operations are costly


 Establishing a corporation is costly
 Start a corporate business requires complex paperwork
 With some exceptions, corporate income is taxed twice

Limited Liability Company (LLC)


Similar to a limited partnership, an LLC provides owners with limited liability
while providing some of the income advantages of a partnership. Essentially,
the advantages of partnerships and corporations are combined in an LLC,
mitigating some of the disadvantages of each.

Advantages of an LLC:

 Limits liability to the company owners for debts or losses


 The profits of the LLC are shared by the owners without double-taxation

Disadvantages:
 Ownership is limited by certain state laws
 Agreements must be comprehensive and complex
 Beginning an LLC has high costs due to legal and filing fees

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy