By: Arsalaan Asad, 2nd Period
Sole proprietorship is a business run by only one person.
Advantages: This form of a government is the cheapest and easiest form of business. Which the owner has complete control over the business. Also all the profit collected by the business goes straight to the owner.
Disadvantages: The owner is responsible for all debts against the business. The owner is limited to using his own funds. Which creates a risk against his own assets. Hard to attract employees.
Rules and Regulations: The legal name for your sole proprietorship is your name. Any legal documents that must be signed, must be done in your name. Operating a business as a sole proprietor places you in the category of self-employed for tax purposes. Which makes the owner responsible for paying self-employment tax.
Facts(2-3): Sole proprietors find it very helpful to consult with other sole proprietors who successfully operate a business. Sole proprietorships engage in a wide variety of businesses.
Examples: most computer repair services operate as a sole proprietorship.
Two or more people share ownership in a business.
Advantages: The business is easy to establish. There is a higher possibility of more funds. The business’ profits go straight to the partners tax returns. They can attract employees.
Disadvantages: Disagreements may occur. Profits must be shared. Effort by both owners must be used. The partnership may split or be broken.
Rules and regulations: Partners should have a legal agreement that sets forth how decisions will be made, profits are shared, disputes are resolved, how future partners will be admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed. Each partner must decide how much time and capital each will contribute.
Facts(2-3): There are 4 types of partnerships: Active Partners, Dormant Partners, Nominal Partners, and Minor Partners. Each partner must contribute money, property, and skill. The limit to the number of partners a partnership may have is 20.
Example: Google had started out as a partnership started by Larry Page and Sergey Brin.
Limited Liability Partnership (LLP)
A corporate structure where the members of the company cannot be held personally liable for the company's debts.
Advantages: Members of the LLP can choose how they want to be taxed.There are less requirements to start the business. LLP’s protect their members from liability.
Disadvantages: Unless you choose to be taxed as a corporation, LLP’s are subject to self employment taxes. There can be confusion in roles in the company since LLP’s generally don't have specific roles. If a member departs the LLP then the LLP is dissolved.
Rules and regulations: You create rules that govern your business, otherwise the government will. Each member of the government must pay self employment taxes.
Facts(2-3): In some states, a Limited Liability Company requires a minimum of two members, while a corporation may incorporate with one shareholder. It is not advisable to organize a Limited Liability Company with one member due to negative tax treatment
Example: Deloitte & Touche LLP
A legal entity which is separate from its owners.
Advantages: Shareholders have limited liability for the corporation's debts. Shareholders are only accountable for their investment in the company. Can raise additional funds through stocks. May deduct the cost of benefits it provides to officers and employees.
Disadvantages: The process to start the business requires more time and money than other forms of businesses . Monitored by federal, state and some local agencies. More paperwork is to be completed to comply with regulations. May result in higher overall taxes. Sometimes, corporations can be taxed twice, once when the company makes a profit, and again when dividends are paid to shareholders.
Rules and regulations: To register your business as a corporation, you need to file certain documents such as articles of incorporation. Some states require corporations to establish directors and issue stock certificates. Business licenses and permits must be obtained.Corporations are required to pay federal, state, and maybe even local taxes.
Facts(2-3): There are different types of corporations such as private, nonprofit, municipal, or quasi-public. Any meeting other than the annual meeting is a special meeting.If a corporation is to issue one type of share, the shares would be called common stock or common shares
Example: Some major corporations are Best Buy or CBS.