Forms of Business Essay

The vast majority of small businesses start out as resole proprietarys. These firms are owned by one person, usually the soul who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the net income generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business. Advantages of a Sole Proprietorship Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control, and within the parameters of the law, whitethorn make decisions as they actualize fit. Profits from the business flow- by dint of directly to the owners personal revenue enhancement return. The business is easy to throw out, if desired.Disadvantages of a Sole Proprietorship Sole proprietors pull in numberless liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. May be at a disadvantage in raising property and are often particular(a) to using funds from personal savings or consumer loans. May have a hard prison precondition attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business. some(prenominal) employee benefits such as owners medical amends premiums are not directly deductible from business income ( and partially as an adjustment to income). PartnershipsIn a Partnership, two or to a greater extent people divide ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions pull up stakes be made, profits will be shared, disputes will be resolved, how future henchmans will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed Yes, its hard to thin k about a break-up when the business is just getting started, but many partnerships split up at crisis times and unless there is a defined process, there will be even greater problems. They also must decide up figurehead how much time and capital each will contribute, etc. Advantages of a Partnership Partnerships are relatively easy to establish however time should be invested in developing the partnership agreement. With more than one owner, the ability to raise funds whitethorn be increased. The profits from the business flow directly through to the partners personal tax return. Prospective employees may be attracted to the business if given the incentive to become a partner. The business usually will benefit from partners who have complementary skills.Disadvantages of a Partnership Partners are jointly and soully liable for the actions of the other partners. Profits must be shared with others. Since decisions are shared, disagreements can occur. Some employee benefits are not deductible from business income on tax returns. The partnership may have a peculiar(a) life it may end upon the coitus interruptus or death of a partner.Types of Partnerships that should be considered1. General PartnershipPartners divide responsibility for management and liability, as well as the shares of profit or wrong according to their internal agreement. Equal shares are assumed unless there is a written agreement that put forwards differently. 2. moderate Partnership and Partnership with limited liability Limited means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decision, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership. 3. Joint VentureActs like a general pa rtnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.CorporationsA Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed it can be sued it can figure into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes. Advantages of a Corporation Shareholders have limited liability for the corporations debts or judgments against the corporation. Generally, shareholders can only be held accountable for their investment in stock of the company. (No te however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes. Corporations can raise additional funds through the sale of stock. A Corporation may deduct the cost of benefits it provides to officers and employees. Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.Disadvantages of a Corporation The process of incorporation requires more time and money than other forms of organization. Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. Incorporating may result in higher overall taxes. Dividends paying(a) to shareholders are not deductible from business income thus this income can be taxed twice.Sole proprietorshipAlso referred to as single proprietorship, a sole proprietorship is the most simple form of business and the easiest to register, th rough the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI). It is owned by an individual who has full control/authority of its own and owns all the assets, as well as personally answers all liabilities or losses.The fact that it is run by the individual means that it is highly flexible and the owner retains absolute control over it. The problem, however, is that a sole proprietor has unlimited liability. Creditors may proceed not only against the assets and property of the business, but also after the personal properties of the owner. In other words, the law basically treats the business and the owner as one and the same. This uniform interference also has important tax implications. Partnerships and corporations may lessen their tax liability through a myriad of business expenses and other tax avoidance techniques. These tax deductions may not be applicable to a sole proprietorship. Also, the potential growth and reach of a s ole proprietorship pale in equation with that of a corporation. PartnershipA partnership consists of two or more persons who bind themselves to contribute money or industry to a common fund, with the tendency of dividing the profits among themselves. The most common example of partnerships are professional partnerships, like in the case of law firms and accounting firms. Just like a corporation, it is registered with the Securities and give-and-take Commission (SEC). A partnership, just like a corporation, is a juridical entity, which means that it has a personality distinct and separate from that of its members. A partnership may be general or limited.In a general partnership, the partners have unlimited liability for the debts and obligation of the partnership, pretty much like a sole proprietorship. In a limited partnership, one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. Unlike a corporation, which survives even when a member/stockholder dies or gets out, a partnership is dissolved upon the death of a partner or whenever a partner bolts out.CorporationA corporation is a juridical entity established under the Corporation Code and registered with the SEC. It must be created by or composed of at least 5 natural persons (up to a maximum of 15), technically called incorporators. Juridical persons, like other corporations or partnerships, cannot be incorporators, although they may subsequently purchase shares and become corporate shareholders/stockholders. The liability of the shareholders of a corporation is limited to the amount of their capital contribution. In other words, personal assets of stockholders cannot generally be attached to satisfy the corporations liabilities, although the responsible members may be held personally liable in certain cases. For instance, the incorporators may be held liable when the article of faith of piercing the corporate ve il is applied.The responsible officers may also be held solitarily liable with the corporation in certain labor cases, particularly in cases of illegal dismissal. The biggest businesses take the form of corporations, a testament to the effectiveness of this business organization. A corporation, however, is relatively more difficult to create, organize and manage. There are more reportorial requirements with the SEC. Unless you own sufficient number of shares to control the corporation, youll most likely be left with no participation in the management. The impact of these concerns, however, is minimized by the armament of lawyers, accountants and consultants that assist the corporations management.