The 4 most prominent types of business ownership.
Sole Proprietorship is the least complex of the business ownership types. This form of ownership does not refer to a legal entity, but rather a figure who holds complete responsibility for the debts and ownership of the business.
Standard Regulations to Follow
- Have Adequate Insurance & Protection- Business struggles could end in the seizing of personal assets, so necessary protection is recommended.
- Must File Personal and Businesses Taxes on Time- Personal Income Tax Return, Schedule C, Schedule SE, W-2 Wage & Tax Statement, etc...
- Complete Control- the sole owner has complete control over all aspects of company and does not need to consult a team or members in regards to decision making or finances.
- Simple Tax Preparation- Being the lowest of the business structures, taxes for a sole proprietorship are linked with personal taxes, making it easy to organize and fulfill tax reporting requirements.
- Personal Liability- The owner is (can be) held completely liable for all obligations and debts of the business, on a personal scale. There is no legal separation between a business and its owner.
- Raising Money- It is difficult for sole proprietorship business owners to receive investments from investors, since stock cannot be sold in the business.
- Unincorporated business, owned & operated by one individual
- No distinction between business & owner
- Owner holds responsibility for all loss, liability, and debt of company
- Catering Company
- Freelance Writer
Standard Regulations to Follow
- Developed a Legal Partnership Agreement- This document will provide documentation of how the partnership will be run, how profits will be shared & split up, how the partnership will be modified (if needed in the future), and how partners will resolve internal disputes.
- Registering the Buisness with the State- A process most commonly done through the Secretary of State's office. Along with this, a name for the company will need to be registered (If any other name is used, other than the one registered, you will have to file a "fictiocious name" report.
- Will need to register with the IRS, local revenue agencies, and obtain a tax ID or permit.
- Inexpensive & Easy- Partnerships usually take on a simplistic structure, making them easy to conform to and work with. The most complex aspect of starting a partnership is usually in the development of the partnership agreement.
- Complementary Skills- Partnerships will use each owner's strengths, skills and resources to benefit the business and compliment other partner's unique strengths and skills. If one partner is not as confident with a business aspect, the other partner may be able to fulfill that position in order to have success in the partnership.
- Shared Liability- Not only are partners liable for their own actions, but also share responsibility for the decision-making and actions of their co-owners. Essentially, if one partner "goes down", the other could very easily end up in the same position.
- Joint Profits- Because partnerships are owned as a "joint", each partner shares the profit with the other(s). An unequal amount of contribution made to the company (time, resources, labor) can result in discord amongst partners.
- Partnerships are a type of Non-Incorporated Operations
- Partners are all equally liable for any liabilities in the company
- Composed of two or more members
- Basically "joimt custody" over a business
- Warner Bros. Production
- McDonald's Food
Limited Liability Partnership (LLP)
Regulations to Follow
- Must obtain a Certificate of Registration filed by the Secretary of State. Upon approval, the Secretary of State must review the filings for statutory compliance.
- Must file and submit a filing fee, along with all tax information.
- Must file Articles of Organziation to legitimize the business.
- Flexibility- Rules, regulations, and certain management structures are agreed upon by the members (partners). With that being said, those aspects of the buisness can also be changed by agreement between partners.
- Minimal Record Keeping- Compared to other business structures, such as S-Corporations, LLP's have a fairly small amount of registration paperwork to be filed & turned it. There are also less start up costs & fees.
- Sharing of Profits- It is up to the members/partners of the company to distribute earned profits. More freedom to decide who gets what (to a certain extent).
- Self-Employmemt Taxes- The entire net income of the company is subject to pay self-employment taxes toward Social Security and Medicare, because the business structure is considered "self employment".
- Limited Life- If a partner decided to leave the business or is removed by death, the business is dissolved and existing members must fulfill all business and legal duties & obligations. However, remaining partners may personally decide to start a LLP or part ways.
- One partner is not held responsible for another parter's actions or mishaps.
- Partners have protection against their personal liability & assets
- Clear distinction between business & owner. If the business fails, the owners (partners) will still have security over their personal assets & accounts.
- Basset Law Firm LLP
- Erst & Young LLP
- PricewaterhourseCoopers LLP
Corporation is a type of business ownership that declares itself as a separate, legal entity, led by a group of individuals known as the board of directors.
Regulations to Follow
- Annually, shareholders elect the board of directors, who guide and discuss corporate affairs, monthly.
- A fee must be paid to qualify for the approval to do business in a state
- Finances- Additional capitol can be raised through investors, stock markets, etc... Corporations may be able to raise additional funds by selling shares in the corporation.
- Protection of personal Assets- The owners have limited liability protection against the corporation's obligations and debts.
- Costs- The overall cost to form a corporation may be rather high, because corporations are usually subject to pay overall higher taxes.
- Paperwork & Time- Forming a corporation requires an extensive amount of time, along with any extra paperwork accumulated from government agencies monitoring corporations.
- Credibility- A company that structures itself as a corporation, gives the impression that it is around to stay (very professional & successful)
- (Can) Have more rights and liabilities than those of a sole proprietorship
- Decreased personal control
- Involves the making of a legal identity, separated from the owner's personal identities.
- Does not "end" when the owner dies (Some may refer to it as "immortal")
- 7 Eleven