Business Ownerships

An in depth look at the 4 major types of business ownerships

Sole Proprietorship

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." -Entrepreneur.com

Sole proprietorship is one of the simplest forms of business ownerships in the modern world. It is not a legal entity, having only one individual that is responsible for everything running through the company.

Advantages

-ease of setup

-only ownership that can commingle personal and business property and funds

-low cost (to establish)

-obtain local licenses and the business is ready

-no voting or meetings

-simple taxation

Disadvantages

-the owner remains personally liable for all the business's debts

-all lawsuits target the owner

-owners cannot raise capital by selling an interest in the business

-sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value

Policies & Regulations

-must file various tax forms with the Internal Revenue Service and pay any taxes due

-taxes must be filed under the owner's personal Social Security number

-an estate plan is a necessity due to the risk of death or injury of the owner

Facts

-a sole proprietorship legally terminates immediately upon the death of the owner

-no legal distinction exists between a person as a sole proprietor and an individual person

Examples

-Bookkeeping

-Home Healthcare

-Financial Planners

-Landscaper

-Housecleaning Service

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What Is A Sole Proprietorship?

Limited Liability Partnership (LLP)

Definition

"A business organization that allows limited partners to enjoy limited personal liability while general partners have unlimited personal liability." -Entrepreneur.com

Although similar to a general partnership, limited partners have no personal liability beyond their investment in the partnership interest. They do not participate in daily operations or general meetings.

Advantages

-protects individual partners (one partner's success or failure will not affect another's)

-credits and deductions are divided by the percentage of individual interest each partner has in the company-this can be beneficial for partners who have a limited interest in the company or special tax requirements

-flexibility in business ownership

-managerial duties can be divided equally or separated based on the experience of each partner

Disadvantages

-not all states allow LLCs to operate

-there can be additional taxes when registering as well as issues with personal tax filing

-less business credibility

Policies & Regulations

- limited partnership agreements must be in writing

-partners cannot deduct losses greater than their basis in the partnership

-must contain the same provisions as those in a general partnership agreement-with some complex additions

Facts

-in most states, LLPs are only available to a select group of professions, such as law and accounting firms

-limited Liability Partners are not personally liable for the debts, obligations and liabilities of the partnership

Examples

-Ernst & Young (E&Y) LLP

-Bassett Law Firm LLP

-PricewaterhouseCoopers LLP

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What is a Limited Liability Partnership?

Partnership

Definition
"A legal form of business operation between two or more individuals who share management and profits. The federal government recognizes several types of partnerships. The two most common are general and limited partnerships." -Entrepreneur.com
There are two types of partnerships- general and limited. A general partnership includes members who are liable to each other, while a limited partnership is made up of both general and limited members, who are solely investors.

Advantages

-a collaboration of ideas
-easy to establish & low cost
-more capital is available for the business
-you’ll have greater borrowing capacity
-a partnership doesn't pay tax on its income

Disadvantages

-the liability of the partners for the debts of the business is unlimited
-there is a risk of disagreements and friction among partners and management
-if partners join or leave, you will probably have to value all the partnership assets and this can be costly

Policies & Regulations

-draft a partnership agreement
-at tax time, the partnership must file a tax return that reports its income and loss to the IRS

Facts

-general partners are personally liable for the partnership's obligations and debts
-limited partnerships are generally not the best choice for a new business
-the partners manage the company and assume responsibility for the partnership's debts and other obligations

Examples

-Warner Bros.
-McDonald's
-Microsoft
-Apple Inc.
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Business Entities - Partnership

Corporation

Definition
"A form of business operation that declares the business as a separate, legal entity guided by a group of officers known as the board of directors." -Entrepreneur.com
Corporations are given the right to exist by the state that issues their charter. You can incorporate your business by filing articles of incorporation with the appropriate agency in your state. Each year, the directors elect officers such as a president, secretary and treasurer to conduct the day-to-day affairs of the corporate business.
Advantages
-additional capital can be raised easily through stock markets, etc.
-corporations may be able raise additional funds by selling shares in the corporation
-they may deduct the cost of benefits it provides to employees and officers
Disadvantages
-forming a corporation requires more time and money than forming other business structures
-governmental agencies monitor corporations, which may result in added paperwork
-they may be subject to higher overall taxes
Policies & Regulations
-there's usually a fee that must be paid to qualify to do business in a state
-once a year, the shareholders elect the board of directors, who meet to discuss and guide corporate affairs anywhere from once a month to once a year
-positions are elected
Facts
-limit the liability of their shareholders
-if the corporation is small, the shareholders should prepare and sign a shareholders buy-sell agreement
Examples
-7-Eleven
-Ford
-Nike
-Walgreen
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