By: Andrew Duong
Four Types of Business Ownership
- Sole Proprietorship
- Limited Liability Partnership
Definition:A business that legally has no separate existence from its owner. Income and losses are taxed on the individual's personal income tax return.
Explanation: A Sole Proprietorship is the most common business, because it is so simple. A Sole Proprietorship is a business owned or run by one person. The individual is responsible for profits, debt, losses and liabilities. No formal action is need to be taken in order to be a sole Proprietorship, as long as you are the only owner in your company then you are considered a Sole Proprietorship.
- A Sole Proprietorship can be founded instantaneously, easily, and very inexpensive compared to other business entities.
- It allows the owner to not pay unemployment tax to himself/herself, but still needs to pay unemployment tax for employees.
- Allows for more flexibility and 100% control over any changes or refinements to the company.
- A Sole Proprietorship is very risky because the owner could lose lots of personal belongings just trying to keep the company from crumbling.
- Owners are responsible for losses of debt and losses of liability of the business.
- Very hard to raise money and is difficult for banks and investors to loan money or invest in the company when the can't tell is the company is credible or not.
- Strictly single owner organizations.
- Everything belongs to you and your are liable for anything that goes down in your company.
- Sole Proprietorship companies with employees need to register to get a employee identification number for tax filling purposes.
- If companies are not operating under a real name then they must register for a company name with a county clerk or a state government.
- A Sole Proprietorship is the simplest for a business ownership
- Majority of small business started as a Sole Proprietorship.
- A "Real Names" is to be considers like "John Smith Doughnut Shop"
- Financial Planners
- Freelance Writer
Definition: A partnership is an arrangement in which two or more individuals share the profits and liabilities of a business venture.
Explanation: Partnership mainly are managed with two or more people and everyone assumes responsibility for the partnership's debt and other obligations. Some partnerships serves as limited partners or investors, they have no control over the company and are not subject to the same liabilities as the general partners. The opposite of the limited partner is a general partnership in which the partners/ members are active.
- Partnerships are generally inexpensive and is a easily formed business structure, most of the times is spent often focuses on developing the partnership agreement.
- In a partnership each partner is equally invested in the success of the business.
- Partnerships have an employment advantage over other business entities to offer a opportunity to become a partner of a company.
- Partnerships need to have all members be fully responsible for the liability of the company and business debt.
- With multiple partners involved in the company then there will be different mind set thinking different ways and can often lead to disagreement.
- Partnerships have more than one person who has a share of the company, so the profit must be split among the group/partnership.
- Partnerships do not require formal meetings like corporations do.
- It needs a Partnership agreement to show how business decisions are made and how they disputed or resolved.
- The partners are free to divide profits by a formula separate from their ownership interests
- Owners can start partnerships relatively easily and inexpensively
- Partnerships offer favorable taxation to most smaller businesses.
- Individual partners bear responsibility for the actions of other partners.
Examples: Started off as partnerships now corporations.
- Warner Bros
- Hewlett Packard (HP)
- Apple Inc
- Ben and Jerry's
Limited Liability Partnership
Explanation: Like said in partnership it is said that there are two types of partnerships one its General and Limited partnership. With a Limited Liability partnership they have no personal liability beyond their investment in the partnership interest. LLps can still be structured so that all partners participate equally in decision making. So of the most popular LLPs are silent partners, where the limited partner provides financing for the venture and general partner helps run the business. Limited partnerships protects the assets of silent partners by limiting their exposure and liability.
- Owners of LLP are afforded less protection against possible claims made by owners.
- The partnership itself not responsible for paying taxes.
- Also allowed to put in info for the company.
- Partners have the authority to decide how they will individually contribute to business operations.
- In California and New York they both limit the use of LLPs to professionals only and cannot be used as a choice for small businesses.
- LLPs are not recognized as legal business structures in every state.
- Individual partners are not obligated to consult with other participants in certain business agreements.
- Partnership agreement should be clearly stated to tell what partners can and cannot do during making business decisions.
- An Articles of Organization with the appropriate agency in your state
- All partners have limited liability protection.
- All partners receive partnership tax treatment, there is no entity level income tax.
- Allows flexibility in splitting partnership profits and losses.
Examples: All were or still are LLPs
Explanation: Corporation is the most advantageous way to start a business because the corporation exits as a separate entity. You can incorporate your business by filling articles of incorporation with the appropriate agency in your state. After stock is issued to the company's shareholders in exchange for cash or assets. Corporations can capitalize and operate the liability of their shareholders. If a corporation
- Job security is a huge advantage for a job and you wont have your entrepreneurial ideas at risk.
- Companies can absorb the failures or mistakes.
- The more people in a company the more ideas will be thought up of.
- Time is limited and even though they have company resources the con only use them when the company is not using them.
- There are long approval cycles and most of the time you need to wait on your idea that you have and wait for the company's approval first.
- The company own the concept of any intellectual rights surrounding the concept as well.
- Your company policies should never be on paper.
- Your policies should not be dispersed and should always be in a consolidated area.
- All of your policies must be up to date.
- A corporation must end its tax year on December 31 if it derives its income primarily from its shareholders
- Your corporation must have defined rules and and violated rules MUST be investigated/addressed.
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