This type of business form is owned solely by one person. The business can choose to do business under a fictitious name by filing a d.b.a., but the owner is the business. The following seven characteristics in bullets below describe the advantages and disadvantages of a sole proprietorship:
• LIABILITY – A sole proprietor (owner) is personally liable for everything in regards to the business. This unlimited liability lies with the owner of the company because there is no difference or distinction between the owner and the business; therefore, the owner is responsible for the business’ debts and obligations and the owner’s personal property can be pulled into the business to resolve any issues with creditors or unpaid portions of lawsuits against the business.
• INCOME TAXES – In regards to Income tax, the sole proprietorship faces challenges because the business income is treated as personal income for the owner of the business. As stated above, it is because there is no distinction or difference between the owner and the business; therefore, a sole proprietorship has a huge challenge in taking advantage of lower tax rates because personal income tax is normally one of the tax forms that falls within the highest tax rates. There is a small advantage as well because the sole proprietor can also reduce taxable income by the expenses for doing business like depreciation, etc.
• LONGEVITY/CONTINUITY – Longevity of a sole proprietorship lies with the owner. The business can exist as long as the owner of the business is alive because the owner and the business are one and the same. The assets of the business can be sold, but the business ends with the life of the owner.
• CONTROL – Again because a sole proprietorship is owned by one person, the control lies with the owner. The owner has complete autonomy, the freedom to do business in the manner and location that the owner of the company chooses.
• PROFIT RETENTION – One of the major advantages of a sole proprietorship is that all the profits of the business remains with the owner, but this goes back to the fact that the owner and the business are one and the same.
• LOCATION – Because the sole proprietor (owner) has complete autonomy, the owner may choose the location of the business.
• CONVENIENCE/BURDEN – This form of business is very convenient. The only forms that must be filed is a d.b.a. form if the owner wants to do business in a fictitious name and any forms or permits that are needed for the type of business the owner wants to operate as. There are no specific forms that must be filed to terminate a sole proprietorship, which is why this form is business is most common in the Unites States. As for burden of the business, it solely rest with the owner of the business as they are one and the same.
II. GENERAL PARTNERSHIP
This type of business form is owned by two or more people in an unincorporated business. The business is can be formed verbally, but most of these partnerships are formed by completing a contract called an Article of Partnership. This contract usually contains a buy/sell agreement which is an agreement amongst the partners which lines out the value of a partner’s portion of the business in case of a death or withdrawal. The following seven characteristics in bullets below describe the advantages and disadvantages of a general partnership:
• LIABILITY – A general partnership distributes the unlimited liability fully among the partners. Each partner is completely and personally responsible for all debt and obligations with regards to the business, even bad acts and malpractice that were performed by solely by one of the partners. The only case where this is not true is if it is specifically stated differently in the articles of partnership.
• INCOME TAXES – In regards to Income Tax, a general partnership is not required to file an