Lit1 Task 310.1.2-01-06 Essay examples

1487 Words Apr 29th, 2013 6 Pages
LIT1 Task 310.1.2-01-06
Part A
Sole Proprietorship -
• 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.
• INCOME TAXES – As a sole proprietor all business income or losses must be reported as personal income tax. The business itself is not taxed separately.
• LONGEVITY/CONTINUITY – The sole proprietorship is defunct once the business owner dies, or quits.
• CONTROL – The business is controlled by the single business owner. The control cannot be passed to another person.
• PROFIT RETENTION – All profits are kept by the business owner.
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• LONGEVITY- A C-corporation life is potentially unlimited. The C-corp company could exist if it can continue to make a profit and cover all of the debt. If a shareholder dies or leaves the company it will not automatically lead to the dissolving of the business. The shareholders stakes are transferred to another party.
• CONTROL- Shareholders do not typically manage the company’s business. Instead a board of directors is elected. The board of directors has direct control over the company. A board member can also be a shareholder.
• PROFIT RETENTION- The company’s profit can be used in two ways. The profit can either be invested in the business or it will be paid out to the shareholders as dividends. Dividends are based upon on the shareholders stake.
• LOCATION- Location is irrelevant for the C-Corp since corporate tax is the same for all states.
• CONVENIENCE/BURDEN - The major convenience of a C-corporation is how easily it can obtain additional funds through issuing additional stocks. C-Corp's are burdened by the double taxation of both the corporation itself and dividends paid to the shareholders.

S-Corporation -
• LIABILITY- The same as a C-corporation, shareholders of S-corporation have limited liability. In the case of bankruptcy they only lose their shares of the corporation.
• INCOME TAXES- S-corp differs from C-corp taxation; taxes are passed through to the shareholders only. The company itself does not pay taxes.

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