Lit1 Task 1 Essay

| In a sole proprietorship, the business and single owner are one in the same. A single owner makes all decisions with regard to the business and the single owner retains all profits earned by the business. The single owner is also responsible/liable for all debts and obligations of the business on a personal level.

As a hybrid of partnerships and corporations, LLC’s provide limited liability for debts and flexibility to be taxed as a partnership or corporation (Staring and Naming a Business Presentation, 2012, Slide 5). Some specific advantages include being empowered authorities in the management of the business, diversity of members, limited liability, pass-through taxation, and less paperwork (appreciated by many). A drawback of this business structure is the need for a tailored operating agreement that specifies the specific needs of the

• LIABILITY – All liability rests in the sole proprietors shoulders. There is no hiding from liabilities of the company for the owner, nor is the business sheltered from liabilities of the proprietor. • INCOME TAXES – Since the owner and his/her business are one in the same, all income is then treated as personal income to the

Many believe that liability is a biggest issue in a general partnership than in a sole proprietorship. The owners of the company are still fully liable for any debts the company may accrue as well as the liability for any lawsuits that may be brought against the company. However, the bigger issue in a partnership is that now each partner can be liable for the other partner’s actions. If one partner is sued for malpractice, the other partner may suffer because of it.

When you form a C corporation, you protect your personal assets. Anyone who sues your company can't go after you personally. You also can buy and sell stock. A corporation survives you, which means you can pass it on to your heirs. To form a C corporation, you must follow specific guidelines. If you file the correct papers, both the Internal Revenue Service and your state will recognize your company as a C corporation.

Sole Proprietorship Sole proprietorship is the most common form of business in the United States. It is a relatively simple way for an individual to start a business since legal costs and business requirements are minimal, and the owner has complete control over the business. Though a sole proprietor is not responsible for any corporate tax payments, the owner is responsible for taxes incurred on the income generated from the business as part of his or her personal income tax payments, and personally shoulders any other risks or obligations. A sole proprietor may also choose to file their business under a fictitious business name or a DBA (doing business as), allowing him or her to operate and market the business under a more typical

Liability- This falls directly on the owner. All debts, liabilities and losses fall on the owner. The owner's assets can be used to alleviate the business's debt.

• Liability: The owner has unlimited liability. When the business fails it is up to the owner to pay all the creditors off.

Longevity/Continuity- The partnership would keep operating outside of the limited partner's death, as per usual, however, if a general partner dies, and the agreement hasn't covered the possibility of their death and also agreed that the business will keep running past the death of a general partner, the partnership will immediately dissolve.

A sole proprietorship is a form of business that is owned by a single individual.  • Liability – Due to the lack of legal distinction between the owner and the business, the owner is fully responsible and liable for all debts that the business incurs in the same manner that an individual is fully responsible and liable for all debts that they incur. There is no legal distinction between the assets of the owner of the sole proprietorship and the business; this means that creditors have the ability to come after the owner’s business and personal material assets.   Income Taxes – Since the business is the same as the owner of the sole proprietorship, all profits or losses from the business are filed by the

* An owner has unlimited liability both personally and as the company owner. Liability is a disadvantage in a sole proprietorship.

Limited Liability Company (LLC) combines the tax advantages of a partnership with the limited liability aspects of a corporation. LLC’s are governed by the Uniform Limited Liability Company Act (ULLCA). All members of the LLC enjoy limited liability unless there is serious misconduct is committed by said member(s), or a member fails to follow through on an obligation. All this should be outlined in your preformation contract. You will have more flexibility with taxation and options on how to manage the company. It would be advisable to also have an Operating Agreement. This will dictate how management will be hired and fired, division of profits, how to transfer interest in the event a member chooses to opt out or dies. What steps to take in the event of dissociation of a partner, and if it causes the dissolution of the LLC. Most importantly how the members vote in the LLC. The weight of the members vote is in accordance with the member’s capital

After the creation of a business plan, the next step to operating a business is the selection of an appropriate business structure. Different legal forms of business ownerships affect different managerial and financial factors from the business names to the tax obligations (Gregory, n.d.). The most common forms are sole proprietorship, partnership, cooperatives, and corporations. There are different types of corporations in the business world, but the two most general corporation types are S Corporation and Limited Liability Company (LLC) (Ferrell et al., 2013). The sole proprietorship is the easiest and most basic form of business ownership. It is owned and run by one individual, which is the proprietor. The individual is entitled to all profits and is responsible for all the business’s

Is the most common business type, where the business is operated and owned by a single individual. In this type of business, the sole proprietor provides capital, does not share profit or loss and runs the business alone. As such, the business and the owner are indistinguishable for tax and legal purposes (Dlabay, 2011). To differentiate this business from other business types, a sole proprietorship is discussed under the following characteristics.

In order for an informed decision to be made in regards to appropriate business structure for any business it is necessary to understand each business structure separately and any attempt to understand business structure must consider the C-corporation as a baseline against which to compare subsequent business structures. A C-corporation is a business organized as a separate entity from the owner or owners of the business that requires the observation of certain formalities. In Texas these formalities include adopting bylaws, maintaining a record of accounts, issuance of stock, recording the issuance and transference of stock, recording minutes of board of director and shareholder meetings, as well as maintaining a record of current and past shareholders (Tex. BOC § 21). It is important to remember that corporate formalities will require time and expense to maintain and every attempt should be made to comply with these requirements to protect the liability limitation of the corporation’s shareholders, officers, and owners.