Discussion Assignment
You own and operate a small store. Currently, you are a single proprietor.
What kinds of risks and liabilities are you facing?
When a business is run as a single proprietor means that the owner is solely responsible and liable for the actions of the company. The risk and the liability are that the personal assets such as house, car, land, or bank savings are also part of the business. There is no legal separation of the assets between the business and the owner of the business. For example, if the single proprietor defaults on a bank loan or there is an accident on one of the employees, the owner is the sole responsible. The bank can seize and liquidate the personal assets for the debts. In addition, the employee who suffered injury for in a work related accident can sue and held the owner liable. The sole proprietor risks all the personal assets if there is a
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However, this risk can be addressed by incorporating the business. There are various options of incorporation depending on the type of business and goals. The most common are the Limited Liability Company (LLC), Limited Partnership (LP), Limited Liability Partnership (LLP), or Nonprofit Corporation.
When the sole proprietor incorporates, it gives advantages and disadvantages. The advantage is that the owner can sales shares to investors and raise capital. Moreover, with an incorporated business the owner and the employees can benefit from health insurance, workers compensation, insurance against accidents, etc. Another advantage of incorporating the business is that it guarantees the safety of the personal assets. For example, if there is an accident or the business defaults on the bank loan, only the business will be liable. The personal assets such as your house or car will not be
| A sole proprietorship is easy to create; there is minimal creation cost and time.The single owner has autonomy in decision making; sole owner makes all decisions related to the business and has complete ownership of business’s finances.
• 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
Sole proprietorships are the most common type of business in the U.S. They are most commonly chosen because they are the easiest type of business to set up and give the sole owner of the company complete control of the company. There are many benefits to a sole proprietorship in regards to control, profit retention, and convenience.
LIABILITY – There is no separation between the individual and the business. As the owner and operator of a sole proprietorship, all of the profit and loss is the personal responsibility of the business owner creating unlimited liability.
Liability: The owner/operator of a Sole Proprietorship is subject to full and unlimited financial liability for the business. The owner and the company are legally the same entity. The company’s assets are legally the same as the owner’s personal assets.
• Control: A sole proprietor has total control of the company and they make all the good decisions and they must deal with decisions that did not turn out the way they intend. The other notable factor in being a sole proprietor of a business is what would happen to the business if the owner became ill or died; typically the business would stop operations based on the structure and debts would need to be resolved as well as customer commitments would need resolving based on the type of business.
* Single Ownership - The single individual always owns sole proprietorship form of the business. The individual owns all assets and properties of the business and bears the risk of losing or gaining from the business.
When choosing a business structure, it is important to understand the kind of liability that you might face. For example, in the case of Jeb and Josh their business venture is very risky, they should choose a business form that minimizes any potential personal liability. I think that a limited liability company (LLC) allows them the maximum protection for their personal assets without the formalities of corporate bylaws, directors and shareholders.
Moreover, LLC’s offer many of the advantages of both the closely held forms of business (Sole Proprietorship, Partnerships, and limited partnerships) and those of the corporate forms of business. Most notable; reduced personal liability, relative simplicity to form and reduced regulatory operation burden to the owners. Following are the key reasons that our founding members have chosen to incorporate as an LLC:
A) One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.
There are many types businesses in this world; these include Sole trader, Plc, Ltd, Partnership, Co-op and
Based on our learned and collected information from internet, we known different business organizations have different tax rate and policy. As we known, Hua and Lin decided to start a clothing business. In our team opinion, this company is classified as an limited liability company, which as an alternative to a general or limited partnership. First,this company has two person, an LLC has two or more members. The income of LLC is not taxed at the entity level but passes through to the member. The member of LLC only need to pay their personal income tax. While the LLC does not pay tax income. Compared with LLC, the closed corporate need to pay personal tax income and corporate tax income. This mean double tax. From this compare,we found the LLC has lower tax burden. So that, Hua and Lin choose the kind of LLC is very right.
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
Some of the drawbacks for a business set-up under an incorporation is the additional requirements for administrative details and record keeping. In some cases, becoming incorporated can create an additional tax burden for the business. This can be especially detrimental to the owner of the business during the developmental
The advantages to the sole proprietorship are single control over the business and its decisions, easy to start up, less regulations and paperwork burden that the other types of business. The disadvantages are unlimited liability for their company debts and actions. The law does not recognize any distinctions between the owner’s business assets and personal assets. Banks are very skeptical about lending to these types business because there is only one person to hold liable for repaying the debt.