LIT1 Task 1 Part A
SOLE PROPRIETORSHIP
Sole proprietorship is the most common form of business in the United States. A sole proprietorship is a business that is owned by one person. Sole proprietorships have the following characteristics:
1. LIABILITY- There is no difference between the belongings of the business and the business owner. The business owner can use his/her personal money or business money to pay off any debts whether they are personal or business related. Therefore, sole proprietorship has unlimited liability and if debts cannot be paid, creditors may take personal belongings.
2. INCOME TAXES-Any earnings through the business are reported on the owner’s personal taxes. There is no separate federal income tax reporting in this instance. This can be challenging as personal income taxes tend to be taxed at the highest rate, but the sole proprietor has the advantage of writing off certain cost as business expenses.
3. LONGEVITY/CONTINUITY-Since there is no legal difference between the business and the business owner, once the business owner dies, the business is not longer carried out.
4. CONTROL-The business owner makes all important decisions and decides how much power is given to his or her workers. There are no partners in this type of organization. The business owner has total control.
5. PROFIT RETENTION-Any profits made off the business belong to the business owner. Once a job is completed and the business owner receives the money, the business owner will be responsible for paying any of his or her workers and any other debts and will then take the profit.
6. LOCATION- Sole proprietors can choose where they want their business and can relocate and expand their business as they wish, but they do have to abide by the states laws and obtain state and local permits in which there business is located.
7. CONVENIENCE/BURDEN-The convenience of being a sole proprietor is the business owner is the boss and makes all decisions and controls the business by his or herself. The downfall to this is banks and other lenders are hesitant to approve funding for this kind of business and all money owed is the sole proprietor’s personal and business responsibility.
GENERAL PARTNERSHIP
1. LIABILITY-There is unlimited liability between the business and the partners in the business. All partners in the partnership are liable and creditors can go after one partner, several partners or all partners no matter what the given situation is.
2. INCOME TAXES-A general partnership does not have to file federal taxes because it is a pass through entity. A partnership has to report gross partnership income, business deductions, and net taxable income by filing an information return. Each individual general partner must include his or her share of profits on the individual tax return.
3. LONGEVITY/ CONTINUITY - When a partner dissociates or dies, another partner can buy out the departing partner or can end the partnership depending on if there is a buy/sell agreement.
4. CONTROL-All partners have equal authority unless otherwise arranged. In partnership with more than two members, the majority of votes will usually rule and all partners have to give unanimous consent for unusual decisions that signify vital importance.
5. PROFIT RETENTION- Partners share profits or losses equally unless there is a written formal agreement. When there is a formal agreement, partners will share in agreed proportions.
6. LOCATION- Partnerships can choose where they want their business and can relocate and expand their business as they wish, but they do have to abide by the states laws and obtain state and local permits in which there business is located.
7. CONVIENENCE OR BURDEN- The convenience to this is all partners split the profits, work and financing while also sharing the risk and liability. The disadvantage of partnerships can include limited transferability if one partner does and difficulty in managing partners.
LIMITED PARTNERSHIP
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