Sole Proprietorship refers to a person who is owns the business and is responsible for its debts. It is a simplistic business that is easy to set up. The person who owns the company only needs to register their name to secure local licenses. A disadvantage is that the person is liable for the companies debts. Sole proprietors sign contracts under their name because they have no separate identity under the law. You must file a Schedule SE with Form 1040. If someone is injured or killed within their business, a negligence case can be brought against the sole proprietor for their personal assets. Owners cannot raise capital by selling an interest in the business. Sole proprietorships usually carry little formalities. Owners can mix business and personal assets. An example of a sole proprietorship is "mom and pop" stores like the one below called Llyods.
A partnership is a business operation where two or more individuals share management and profits. A general partnership is where partners manage the company and assume debts for the partnership, a limited partnership is where general partners operate the business while the limited partners are investors. A partnership has good tax benefits like not paying taxes on income and passing it to the individual partners. Partners can take out loans and make decisions that will effect all binding partners. General partners are responsible for the partnerships obligations and debts though. Partnerships must share ownership authority. If the partners are tied in a vote, a third party person who may only own 1% of the business can break the tie. Must state how ownership interest is shared between partners. Skype is a partnership with Facebook.
Limited Liability Partnership
A limited liability company usually requires a partnership agreement between with annual reporting requirements for the partners to agree upon. All partners in an LLP can participate in the management of the partnership. Once you share the management with other partners, the liability is shared but is greatly limited. A LLP reduces the cost of doing business by having the partners share business space and share employees. Once you reduce the cost there is more profit. The partners receive untaxed profits, and hhave to pay the taxes themselves. Your personal assets as a partner will be protected from legal action. A LLP is a legal and tax entity that benefits partners from economies by working together while also reducing their liability for the actions of other partners. A LLP has a lower audit rate and asset protection. An example of a LLP is Walmart.
A corporation is a legal identity separate from its owners. If an individual owns all the shares of a corporation, they are not responsible for it. The company still survives and does not terminate upon the owners death. C corporations determine whether corporate profits are paid to the stock holders or kept in the corporation. An S corporation is for small businesses in which profits go entirely to the individual stock holders as personal income, and are taxed. If you turn your business into a corporation you can qualify for workers compensation and obtain full health coverage. The fees and legal cost required to forma corporation may be substantial. Double taxation can occur where you are taxed on your stock holders dividends as well as your income. Corporation taxes are significantly lower than other business ownership types around the world. You have tax benefits and can raise your capital with a corporation. You also have liability protection and asset protection with a corporation. An example of a corporation is Best Buy.