There are seven forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company (including the single member LLC), S Corporation, Franchise, and Corporation. 1. Research and provide three advantages and three disadvantages for each business form. 2. Provide a 100- to 200-word summary in which you provide an example business that you would start for each form. What is legally necessary to file in order to form that business? Discuss at least one of the advantages and one of the disadvantages of that form. Sole Proprietorship Advantages.
1. A sole proprietor has complete control and decision-making power over the business. 2. Sale or transfer can take place at the discretion of the sole proprietor. 3. No corporate tax payments Disadvantages 1. Held personally liable for the debts and obligations of the business. 2. Risk extends to any liabilities incurred as a result of acts committed by employees of the company. 3. Decisions making fall on the shoulders of the sole proprietor. Summary A sole proprietorship has to submit a file all applicable forms under the fictitious name or under doing business as (DBA).
An example business can be an Ice-cream stand is one of the easiest business form that an individual may run a business. When operating a business under sole proprietorship, do not mean it is a legal entity it stipulates the owner of the business and who is responsible for the debt that occur for the business. The sole proprietorship can be operated under the name of the owner or a fictitious name , which will be the trade name, but do not constitute a legal entity that have nothing to do concerning the sole proprietor owner. Partnership Advantages 1. Business is easy to establish and start-up costs are lower.
2. You’ll have greater borrowing capacity 3. There is limited external regulation Disadvantages 1. The liability of the partners for the debts of the business is unlimited 2. Each partner is an agent of the partnership and is liable for actions by other partners 3. If partners join or leave, you will probably have to value all the partnership assets and this can be costly. Summary A partnership can be developed with an ice-cream stand business that can have two members or several members because there is not a law or limit how many individuals that start a business together.
There are different types of partnership But, legally all partnerships cannot be started in any and all locations or territories because sometimes it depends on what type of business the individuals are in . One of the advantages of partnership is the results of greater borrowing capacity . A disadvantage is the liability of the partners for the debts of the business is unlimited. Limited Liability Partnership Advantages 1. A partnership can sign contracts and borrow money in its own right, which eases some of the liability burden a sole proprietorship would bear.
2. working relationship between the partners 3. If one partner has skills and talents the other doesn’t, a partnership can truly be a match made in heaven. Disadvantages 1. As a partner, you can also be held responsible for any wrongful act or omission by other partners acting in the ordinary course of the firm’s business . 2. However, in a general partnership, one partner can be held responsible for all debts and obligations incurred in the name of the business by another partner 3.
many people don’t think of until it happens is that partnerships can be the messiest, most acrimonious form of business ownership to dissolve Summary Bookkeeping and accounting is a business that has limited liability partnership. The limited liability partnership is overlooked by a provincial legislation in some places and some individuals may start a limited liability partnership. One the advantages will depend on the working relationship that the partners have, not what the legal aspects of the company is. Limited Liability Company, (including the single member LLC) Advantages
1. Less Recordkeeping 2. Members are protected from personal liability for business 3. Sharing of Profits Disadvantages 1. In the eyes of the federal government, an LLC is not a separate tax entity, 2. Limited Life. In many states, when a member leaves an LLC, the business is dissolved and the members must fulfill all remaining legal and business obligations to close the business 3. Self-Employment Taxes. Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security.
The entire net income of the LLC is subject to this tax. Summary A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members. ” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations, or other LLCs. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity.
Instead, all profits and losses are “passed through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just as the owners of a partnership would. S Corporation Advantages 1. Limitation on Shareholders’ liability of shareholders 2. Pass through of losses to shareholders 3. Continuity; death of a shareholder does not require dissolution of the corporate organization Disadvantages 1. Unintended termination of Subchapter S status for violation of Subchapter S eligibility requirements 2.
Restricted transferability of shares to preclude sales to a non-qualifying shareholder 3. 25% limitation on “passive investment income” for three consecutive years Summary S corporation was promulgated to enable small business to incorporate and avoid the double taxation normally imposed on corporate income as seen in a C corporation. In many ways, the Subchapter S Corporation is treated as an incorporated partnership for income tax purposes only. This treatment allows profits and losses to “pass through” directly to shareholders.
At the same time, shareholders are shielded from individual liability. While, there are no limits on the size of the corporation’s assets or income under Subchapter S, a business must comply with some detailed statutory and regulatory requirements. The main advantages and disadvantages of Subchapter S status are summarized. Franchise Advantages 1. Avoids employee related problems 2. Franchisee operators are motivated to succeed 3. Franchising provides expansion capital Disadvantages 1. Loss of absolute control 2. State and federal franchise disclosure laws 3. Sharing profits Summary.
A franchise is a business model that involves one business owner licensing trademarks and methods to an independent entrepreneur. Sometimes, franchises are referred to as chains. I think that a soul food cafe would be a good franchise to go into Franchisor and franchisee have an ongoing relationship, and the franchisor often provides a full range of services, including site selection, training, product supply, marketing plans and even assistance in obtaining financing Before you decide to franchise, you need to do your research. You could lose a significant amount of money if you do not investigate a business carefully before you buy.
By law, franchise sellers must disclose certain information about their business to potential buyers. Make sure you get all the information you need first before entering into this form of business. Corporation Advantages 1. prospective shareholders exchange money, property, or both, for the corporation’s capital stock. 2. A corporation can also take special deductions 3. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. Disadvantages 1. double tax 2. The corporation does not get a tax deduction when it distributes dividends to shareholders 3.
Shareholders cannot deduct any loss of the corporation. Summary In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes, and distributes profits to shareholders.