When anyone is interested in launching their own unique business, we need to look at all areas of the business to make key decisions that are detrimental to the success of it. As each business is unique to each owner or owners that oversee it we need to identify the important factors of creating the business. The main areas that need to be focused on are liability, taxation, succession, retaining and sharing profits, expansion and convenience or burden. For any owner or owners to be successful in their business they need to be educated on each of the business organization types and requirements that will benefit the owner or owners in their success.
Sole Proprietorship
The most common form of business organization today is a Sole Proprietorship. When anyone decides to start a business regardless of the nature and with minimal capital we think of Sole Proprietorships as the most convenient organization to create. Sole Proprietorship can only be established by one individual. The distinction between the organization and the sole proprietor is the same. The individual or “owner” has full control and makes all decisions of the organization. The owner can delegate anyone to manage the business but is not required to do so. An individual is also responsible for personally injecting capital to the business which may be limited to the individual’s personal assets. Liability created by the organization falls completely on the individual. Debts, Obligations, Legal Implications and anything that is related to the business will be inherited by the individual. A sole proprietor is also taxed as an individual according to his or her personal tax bracket, considered “pass-through” taxation and only requires a separate form on a traditional personal income tax form that we would normally use every year. Any profit gain or loss is reported on the form which makes it very easy for any individual to do. Profits or Losses belong solely to the individual. The individual has the opportunity to move his business in any state anytime. The main factor in a Sole Proprietorship is that there is no distinction with the business and the individual. The individual can work under his legal name or choose a D.B.A (Doing Business As) name to work under. The individual only has to comply with any legal requirements pertaining to the organization’s operation. The main advantages of the sole proprietorship are that it is very easy to form and means that anyone can create it without seeking legal help. Since the individual and business are one, the individual can do things as they see fit. Disadvantages are that the individual risks full liability of the organization. Most sole proprietorships have limited capital which can make it very easy for individuals to lose everything with one lawsuit or to expand further if there operations are small. The owner is also responsible for all debts incurred including wages of employees and financial obligations of the organization. A sole proprietorship exists as long as the owner does. At any point which an individual decides to not continue with his/her business, any obligations left must be fulfilled to cease the organization. A sole proprietor suffers from continuity of the organization since the individual is considered one with the organization; if the owner passes away the organization can cease to exist. This creates major implications if the individual has not prepared in advance. The owner would have to create explicit terms for anyone to continue operating the business. This also can create issues for the individual who would be involved with the organization moving forward with the organization since many legal issues can arise from it.
General Partnership
If brothers and sisters, classmates, co-workers or any 2 or more people want to establish an organization we think of a General Partnerships. Any commitment of 2 or more individuals embarking in a business such as a partnership will share in gains or losses