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Business Structure
Sole Proprietorship:
Sole proprietorship business structure is simplest and easy to formation. Sole
proprietorship is an unincorporated and owned by one individual. There are no differences
between owner and business thus; owner is entitled to all profits, losses, debts and other
obligations of the business. The owner doesn’t have to take formal steps to form a sole
proprietorship business but the owner needs to obtain necessary permits or licenses to
running the business.
Tax consideration:
As the owner and business are not considered to be separate so, the business itself will not
taxed and the business income would be the owner’s income. The owner would report all
business income and expenses under the Schedule C and it would be transferred to the
owner’s personal tax return.
Advantages:
1) Easy and inexpensive:
Sole proprietorship business is easy and inexpensive to form because; it
doesn’t require legal formalities and a large amount of capital.
2) Complete control:
The owner will get complete control over the business as owner and
business is not considered to be separate. Thus, owner doesn’t require being
consult with anybody in case of any business decision.
3) Easy Tax preparation:
As the business is not taxed itself, the owner will report all income in the
personal tax return. Hence, the tax rates are also lower for this business
structure.
Disadvantages:
1) Unlimited liability:
As the owner and business is not separate, the owner will have unlimited
liabilities from the business. The owner will be personally liable for all
business debts and obligations.
2) Hard to raise money:
It is difficult to raise the large amount of money with this business structure
because, Sole proprietor can’t sell stock to the investors or public.
Partnership:
Partnership is a business operating by two or more individuals and each partner
contributes to the partnership business and they share profits and losses equally or in the
predetermined profit sharing ratio. There are various types of partnerships such as:
General Partnership:
Under the General Partnership business, the profits/losses, liabilities and management’s
duties are equally divided among the partners. There can be unequal distribution according
to the partnership’s agreement.
Limited Partnership:
A limited partnership is more complex than general partnership and the partners
will have limited liability as well as limited input regarding the management decisions. The
limits of liability depend upon their percentage of investment in partnership business. The
limited partnership is an attractive form of business in today’s world.
Joint Venture:
A joint venture is similar to the general partnership but its business is only for a
limited period or it may be limited up to a single project. The partners of joint venture are
considered as ongoing partnership if they continue the business.
The Formation of a Partnership:
In order to forming a partnership business, the partners must register the business with
their respective state. The partners must have to choose the name of the partnership
business. The partners must obtain...