Major Types of Business Ownership

By: Morgan Seyler

Types and Features of Business Entities

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.

Advantages

  1. Owners may freely mix business or personal assets.

  2. Sole proprietorships carry little, if any, ongoing formalities.

  3. Owners can establish a sole proprietorship instantly, easily and inexpensively.

  4. May use a trade name or business name other than his, her or its legal name.

Disadvantages

  1. A sole proprietorship remains personally liable for all the business's debts.

  2. If a sole proprietor business runs into financial trouble, creditors can bring lawsuits against the business owner

  3. Owners cannot raise capital by selling an interest in the business.

  4. Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

Policies or regulations to follow

  1. Obtain a Federal Employer Identification Number.

  2. Register your fictitious business with your county or state.

  3. Obtain a local tax registration certificate.

  4. Obtain a permit to sell retail goods and collect state sales tax.

Facts

  1. In 2008, the average annual net income of a sole proprietorship was only $12,000

  2. Total 2008 net income of the 22.5 million sole proprietorships amounted to 265 billion dollars.

Examples

  • Catering Company

  • Housecleaning Service

  • Tutoring

Sole proprietorship (Ytube).mp4

Partnership

Definition

A single business where two or more people share ownership.

Advantages

  1. Partnership Incentives for Employees

  2. Complementary Skills

  3. Shared Financial Commitment

  4. Easy and Inexpensive

Disadvantages

  1. Disagreements among Partners

  2. Joint and Individual Liability

  3. Shared Profits

Policies or regulations to follow

  1. Tax qualification

  2. Issue date

  3. State of residence

Facts

  1. There are 3 different types of partnerships, General, Limited, and Joint.

  2. You don’t have to file any paperwork to establish a partnership.

Examples

  • Real Estate

  • Creative

  • Legal

Business Entities - Partnership

Limited Liability Partnership

Definition

The partnerships that limit personal liability for business debts.

Advantages

  1. Liability protection
  2. Tax advantages
  3. Flexibility

Disadvantages

  1. Special Tax Considerations

  2. Partners Not Consulting

  3. Death of a Partner

Policies or regulations to follow

  1. LLPs must register by filing a written statement with the Secretary of State or similar office.
  2. The name of every partnership filing must end with the words registered limited liability partnership.
  3. Limited Liability Partners must be individuals licensed in the profession performed by the LLP.

Facts

  1. Limited Liability Partners are not personally liable for the debts, obligations and liabilities of the partnership.
  2. Just like shareholders in a corporation or interest holders in an LLC

Examples

  1. Professional Organizations

  2. Taxes and Assets

Limited Liability Partnership

Corporation

Definition

A company or group of people authorized to act as a single entity and recognized as such in law.

Advantages

  1. Protected assets
  2. Pass through taxation
  3. Tax favorable characterization of income
  4. Heightened credibility

Disadvantages

  1. Formation and ongoing expenses
  2. Tax qualification obligations
  3. Stock ownership restrictions
  4. Less flexibility in allocating income and loss

Policies or regulations to follow

  1. Employer Identification Number
  2. Tax Obligations for Businesses
  3. Business Licenses and Permits
  4. Labor Laws

Facts

  1. Giant corporations have become so dominant that it has become hard for small businesses to compete and survive in the United States.
  2. Big corporations completely dominate the media. Most all of the news that you see and almost all of the t.v. that you watch is fed to you by giant corporations.

Examples

  1. McDonalds
  2. Toyota
  3. Wal-Mart