...LIT1 – task 310.1.2-01 through 310.1.2-06 Business Forms Sole Proprietorship – Sole proprietors are individuals doing business on their own. They have no partners or shareholders. A sole proprietor may have a free-standing business where he works or he may be a contractor or freelancer and travel as near or far as he pleases. If he chooses to move to another location or State, he can continue his business there. Some advantages to this type of business are that the sole proprietor makes all business decisions, has creative control and keeps all of the profits (or can reinvest them). He also saves the expense of creating a partnership or corporation. There are no forms to fill out if you are a sole proprietor: you decide to start a business and you do it. There is no legal obligation to become incorporated. Another advantage is that there are no special tax forms to fill out; the sole proprietor fills out a standard IRS 1040 form and includes his business earnings as Schedule C. Disadvantages that may come up in a sole proprietorship include not having enough capital to start or continue the Sole Proprietorship or not having the time to spend with friends and family due to a heavy workload. If the sole proprietor has employees, he may have difficulty retaining them due to the benefits offered by corporations that may be nearby. The sole proprietor is also the sole person responsible in the case of a lawsuit and is personally liable for any debt. A large court judgment...
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...Competency 310.1.2: Organizational Forms a. Sole proprietorship: This is the easiest and least expensive business form to set up. Advantages include low minimal legal fees to obtain proper licenses or permits, easier tax preparation with lower tax rates, and since it only has one owner that owner has complete control in the decision making for the business. Sole proprietorship does not go without its disadvantages. Disadvantages include the challenge to raise money for business growth, unlimited personal liability, and the heavy sole responsibility for the success or failure of the business. • Liability: Sole proprietorships have only one owner and that owner bares unlimited liability since there is no distinction between the business and owner. In the event of the business being sued, the owner would be responsible for the debt or damages incurred by the outcome. If the owner possessed...
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...LIT Task 310.1.2-01-06 Part A 1. Sole Proprietorship – the simplest form business. The business is owned and operated by one person and there is no legal distinction between the business and its owner. The owner of a sole proprietorship assumes all responsibilities, liabilities and profit of the business. • Liability- One major disadvantage of a sole proprietorship is the liability. As a sole proprietorship both the owner and business are one and the same and therefore both are subject to any unpaid debt. If the business has debt that is unpaid then the owner has the same unpaid debt and creditors could go after the individual. The same for if the owner has debts separate from the business the creditors could go after the business. As a sole proprietorship business, liability insurance could be purchased to help abate the liablity. • Income Taxes- As a sole proprietorship business, there is no double taxation as associated with a C-corporation. A sole proprietorship business deducts business expenses on a Schedule C of their personal Taxes. A disadvantage of a sole proprietorship is you will be taxed on total profits of the business and be subject to self-employment tax. • Longevity/Continuity- The longevity of a sole proprietorship business is the life span of its owner. If the owner dies without selling or passing the business on to a relative the business no longer exists. • Control- An advantage of the sole proprietorship is that the...
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...Ashley T LIT1 Task 310.1.2-01-06 Part A Sole Proprietorship – As a sole proprietor, you are your own business entity. You own and run your company, which means you are in complete control and assume sole responsibility of all legal and financial matters. • LIABLITY – There is no differentiation between the business and the owner, as they are one in the same. Therefore the business/owner takes full accountability and has limitless liability for all gains and losses the business obtains. • INCOME TAXES – All business revenue and overhead are considered personal income and have to be reported as such to the IRS on taxes as they cannot be taxed separately. • LONGEVITY/CONTINUITY – The business is only in existence while the owner is actively running it. Should the owner retire or pass, the business ceases to exist. • CONTROL – Since the business has one sole owner, it cannot be passed on to another individual for control. • PROFIT RETENTION – The business/owner retains all revenue. • LOCATION – You are not restricted on where you can operate your business. Depending on the states you expand to, you will be required to register your business with the state agency so it is known who is liable for any incidences. However, if you decide to use your name as the company name, most states will not require any registration. You just need to check with the state agency for their policies. • CONVENIENCE/BURDEN – The business can be established just by doing business...
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...LIT1 Task 310.1.2-01-06 PART A Sole Proprietorship - This is considered one of the most common forms of business in America. There are advantages and disadvantages in being a sole proprietor. An advantage would be that you, as the sole proprietor, are your own boss. In contrast a large disadvantage would be that you, as the sole proprietor, are completely liable for every aspect of the business. * Liability: Sole proprietorships have what is considered to be one of the biggest risks when it comes to liability in that they have unlimited liability. Unlimited liability means the sole proprietor is ultimately responsible if the business fails, this would include debts. * Income taxes: legally there is no dissimilarity in the proprietor and the business, so all the organizations income is taxed as if the owner were working like an ordinary person. * Continuity of the organization: Sole Proprietorships will only last as long as the owner is alive. If the owner dies so does the business, so any employees that the owner had would be left to find other means of employment. * Control: Control of a sole proprietorship lies solely in the owner’s hands, he/she has complete discretion of what direction the business will go or even if the business will continue or not. * Profit retention: The profits from the business go completely to the owner, and would not be shared with any employees. However, this also ties to the financial aspect of the business. If there...
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...Sole Proprietorship * Liability – Sole Proprietorship offers unlimited liability which states that you as the owner are solely responsible for all debts from your personal assets. You can lose not only the money initially invested in the business but also personal assets. * Income Taxes – Due to you being the sole owner there is no separate business income tax filing for a business under Sole Proprietorship. Business income or loss is reported on the sole proprietor’s personal tax return, and any tax is paid at the individual level. * Longevity / Continuity - The Sole Proprietor is the sole owner, with no partners in the business, if the Sole Proprietor becomes disabled, retires or dies the business is dissolved. A business operated under Sole Proprietorship does not offer the perpetual existence of a corporation. * Control – Control of a business that is under sole proprietorship falls under the sole owner. Under a Sole Proprietorship you are not permitted to bring in any business partners, if you do then this would become a General Partnership Business. * Profit Retention – All profits gained under Sole Proprietorship belong to you the owner. However, you are also responsible for any bills incurred prior to any profit being taken. * Location - Expanding or moving a business that is under “Sole Proprietorship” is not very complicated. To move, you register your name or the business’ name to the state you are moving to. The only rule for a business...
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...MEMORANDUM TO: Owner From: RE: Business Options Date: September 27, 2015 _______________________________________________ Changing the way you structure your business can be a frightening endeavor. You have been operating as a Sole Proprietorship for quite some time now, but it appears you have outgrown that business type. You have expressed a need to scale the business as well as a concern for your own personal liability. With those concerns in mind as well as the current state of your business, I recommend restructuring the business into a Limited Liability Company. I will try and address each of your concerns individually and explain how I came to this conclusion. As your business grows you will be opened up to substantial risk, should you decide to remain a Sole Proprietorship. You have expressed concern over debt and liabilities of the business. As an LLC you can protect your personal assets from future risk. Heaven forbid your business sustains a serious debt or claim that it isn’t capable of paying, but if does, your house, car, and personal possessions are safe from any business creditors. As an LLC you will continue to be taxed as a Sole Proprietorship with the ability to adapt to the future status of the business. You will not pay taxes on the income of the business; however profits and losses will pass through to you and be taxed on your own personal income tax returns. Should you take on another owner in the future, you will transition to be taxed...
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...Part A (the report) SOLE PROPRIETORSHIP: This business entity is the most common business used in the United States. This entity is owned and ran by one individual where there is no legal distinction between the owner and the business. This legal name of the business is the owner’s name; however, the business may operate under a fictitious name by filing a DBA. This person is legally accountable for all elements of the business including finances, loans and debts. One of the advantages of doing business as a Sole Proprietorship is that it’s easy to create. Another key advantage is the autonomy. Since the owner or individual is the business, he or she may decide for themselves whatever business decision they feel is needed to make, including the business finances. Some disadvantages would be that it is impossible to bring in others to do business being there can only be one owner. This also makes it difficult to raise capital in terms of seeking investors. Tax planning can also be challenging for the sole proprietor. Since there is no legal distinction between the owner and the business, all the income generated by the business is treated as ordinary personal income to the owner. • Liability: Sole Proprietors have unlimited liability. There is no difference between the owner and the business. Therefore, the owner is personally liable and responsible for all the business obligations and debt. Doing so makes all of the owner’s personal assets reachable to creditors. • Income...
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...Part A (The report) Part B (The memorandum) Student Name Western Governors University Part A (The report) Determining what type of business venture to either start or invest in can be challenging. Over the next several pages we will evaluate the various types of business organizations and at the end of this report; you should have an initial or better understanding of the different types of business forms. Sole Proprietorship: The word proprietorship can sound intimidating. It is important to remember that most things are simplified with knowledge. If your business is a sole proprietorship then you as an individual are the owner and operator of that business. This means the sole proprietor handles everything from setting up the business, which does not require an attorney to establish the business and you only have to report the name of your business if you choose to operate under a name other than your own. Then you need to register your business with the government. • Liability: All liability resides with the owner of the company and even their personal property could be implicated in a situation where the company fails due to poor market conditions, business strategy or if someone is injured as the result of company products or other. The person that owns the business is liable for all aspects of the business and could be drawn into legal actions based on outcomes of liability situations. • Income Taxes: The sole proprietor also reports all earnings...
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...PART A (the report) Sole Proprietorship: is an unincorporated business that is owned by one person, the sole proprietor. An advantage of a sole proprietorship is that there are very few formal requirements for the creation, operation, and termination of the business. The sole proprietor may employ as much or as little capital as he or she sees fit and run the business as they so desire. Additionally all the profits are those of the sole proprietor. With that stated, the losses are also those of the sole proprietor. Since there is no separation in the legal entity between the proprietor and the business, all personal assets become attached to the debt of the business. Another disadvantage can come at the time, or untimely of death of the proprietor. There is no automatic continuation of the business. The business becomes part of the owner’s estate and can become subject to probate and “death tax”. • Liability- You risk everything, there is no legal separation between the business and the individual owner. The owner risks all assets, home, car, everything in his/her name. Unlike a corporation, sole proprietorships have unlimited liability and the proprietor is legally responsible for all debts. • Income Taxes- All business related income or losses must be reported on the owner’s personal income tax return. The business is not separately taxed. Deductions are allowed for business expenses in the same manner as any other type of business. The...
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...REPORT SOLE PROPRIETORSHIP: • LIABILITY – All debits are the responsibility of the sole proprietor. There is no limit of liability for the owner. This includes the owner’s house and all personal property. • INCOME TAXES – All income earned by the business is recognized as personal income by the owner. There is no legal difference between the owner and the business. • LONGEVITY/CONTINUITY – The business fails to exist if the owner dies, or quits. • CONTROL – The owner is the business; the business and the owner are the same. There is only one owner. Sole proprietors have full autonomy of the business (Forms of Business Organization, n.d.). • PROFIT RETENTION – If the business makes a profit, that money belongs solely to the owner. The owner can do anything with the money. • LOCATION – This entity is set up under the owners name but the owner may elect to use a fictitious name known as a dba (doing business as) business. If the business moves to another state, they simply move and register to do business in the new location. • CONVENIENCE/BURDEN – Owners of sole proprietorships have the flexibility in managing their business. This form of entity allows the owner autonomy to set their own hours, grow at their own pace, expand the business, or take a vacation all at their own discretion. At the same time, they also have the entire burden of the company. GENERAL PARTNERSHIP: • LIABILITY – Every partner in the partnership is jointly liable for the partnership’s debts and obligations...
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...Part A The Report Sole Proprietorship This is the most common form of business. The business and the owner are the same. That means all debts and liabilities are the responsibility of the owner. The advantage of this form of business is that it is so easy to start. Basically, you just start selling stuff or providing a service. Of course, if permits or special licenses are needed, you still have to get those. The disadvantage is that you can't bring in a partner because there can only be one owner. Liability: The owner is personally liable for all losses, debts, and liabilities. Income taxes: There is no difference between the business owner and the business, all income earned by the business is the same as personal income to the owner. Longevity or continuity of the organization: Duration of the business is dependent on the owner. If the owner becomes dies or becomes incapacitated, the business will normally cease to exist. Control: The owner has complete control over all decisions regarding the business. Profit retention: All profits and losses pass through to the owner and are taxed only once at the individual tax rate which enable them to keep more of the profits. Location: A sole proprietorship is easily expanded or moved to another state. A DBA needs to be registered in each state, along with filing taxes in each state if required. Convenience or burden: No permission from anyone is needed to form a sole proprietorship. There are no extra tax forms...
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...Part A (The Report) Sole Proprietorship A sole proprietorship is the most common form of forming a business in the United States. The individual that forms the sole proprietorship and the business is one in the same. For example, if the business owes creditors money, the individual who created the sole proprietorship business has to pay the bill. When entering into contracts the individual is actually agreeing to the contract since the person and business is one in the same. The biggest advantage of doing business under a sole proprietorship is that it is extremely easy to form since the individual creating the sole proprietorship is the business. They are fully responsible for all aspects of the business including making good on payments, collecting monies from customers, and providing the goods or services to their clients. Another reason individuals create sole proprietorships is the flexibility they gain by owning their own business. Since they do not have anybody to report to they can do as they please as far as hours, vacations, expansion, or direction of the business. However, there are many disadvantages that come with a sole proprietorship business. Since the individual is the business they are responsible for all financial responsibilities. They are responsible for ensuring all payments to creditors are paid on-time and in full. If the individual runs into financial issues they are responsible without protection. Also, sole proprietorships can only have one owner...
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...1) A Sole Proprietorship is: A. Easy to create, allowing sole proprietors to start their business. B. Able to allow sole proprietors to allocate profits from the company. C. Able to control all aspect of their business, from the company's location and financials to sales and marketing. D. Not required to file taxes, passing the company's profits and losses to their personal income tax return. E. Not required to file dissolution documents with the state in order to dissolve the company. F. Solely owned and proprietors and do not share profits from their businesses. Profit retention allows sole proprietors to use their money as they please. G. An Unlimited Liability because if it fails, creditors can go after both their personal and business assets. They can also be held personally liable for any injuries or property damage incurred by a customer while on their premises. 2) A General Partnership is: A. Liable for all of the partnership debts. B. Is easy to create, allowing partners to start a business quickly. C. Flexible as the partners govern the business in whatever manner they see fit. D. Less expensive to maintain than a corporation. E. Tax friendly as partnerships are not subject to federal income tax on the income earned. F. A financial liability as partners can make investments from their personal finances and the investment is then owned by all partners. 3) A Limited Partnership Is: A. Able to take the...
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...To: Business Owner From: Justin Lugar Date: November 4, 2015 Subject: Business Form Recommendation It seem as though the you are looking for a couple distinct business characteristics for improving areas of concerns you have for your, so far, promising business venture. Since you are now operating in a sole proprietorship, which allows business and personal finances to be one in the same, one worry is not having enough liability coverage to protect your personal assets/finances in unforeseeable lawsuits. Another concern is the being able to raise enough investments in capital assets to be capable of expanding your business. Right now you are not being double taxed, meaning at the corporate level as well as the personal level. Since there is a sole proprietorship going on taxes are only taken out at the personal level, saving you, as the owner, a substantial amount of profit. It is likely that this is one benefit you would like to keep in order to maximize your earnings. Based on the type of business you are seeking to operate I would recommend changing from the sole proprietorship to a Limited Liability Company (LLC) and I will explain why. To sum up what Http://www.referenceforbusiness.com/small/inc-mail/limited-liability-company.com states, the LLC offers the members (owners) protection from business liabilities that might be incurred. This means that they are not personally liable for paying any of the company’s debts beyond what they have invested in the company....
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