Characteristics Of Sole Proprietorship

Submitted By Ponyfreak
Words: 1642
Pages: 7

Part A

Business Organization Report

Sole Proprietorship
A Sole Proprietorship is one of the least complex business structures to create; comprised of a business owned solely by one person. Sole proprietorship’s offer direct liability to an owner as startup costs, losses, and lawsuits fall unequivocally on the business owner. The key characteristics of a sole proprietorship are:
•Liability – The business owner is personally liable for all business actions/lawsuit. All personal assets including their home, college and retirement funds may be seized. Earning power is limited by the amount of capital the business owner can personally fund.
•Income Taxes – Taxed only once as all profits are claimed on the owner’s personal income tax. Applicable state and federal income tax apply.
•Longevity or Continuity of the Organization – A Sole Proprietorship must be sold or transferred before the death of the owner. If this is not accomplished the business will dissolve upon the death of the business owner.
•Control – The Sole Proprietor/owner has total control of the day to day operations of the business.
•Profit Retention – As the sole proprietor, all business profits are the same as the owner’s personal income. These profits may be used any way the owner wants.
•Location – Sole Proprietorships may be run from any location as long as the appropriate state/federal income taxes are reported.
•Convenience or Burden – Easy to form but very difficult to obtain capital from outside investors.

General Partnership
A General Partnership is a business structure established by two or more persons/corporate business partners. A General Partnership may be formed via verbal agreement making it very easy to create. The disadvantages of this business structure are that all debts, liabilities and other business costs are equally divided among all partners. The key characteristics of a general partnership are:
•Liability – A General Partnership does not protect individual investors, who will be held equally liable in lawsuits/debts and pay losses from their personal assets; even if their partner unknowingly engages in an oral or written agreement that is detrimental to the partnership.
•Income Taxes – Similar to sole proprietorships, earnings are treated as personal/stakeholder income with state and federal income tax to be paid accordingly.
•Longevity or Continuity of the Organization – If a partner perishes the business ceases to exist unless the business was sold or transferred to another business partner(s).
•Control – Day to day operations may be delegated in concordance with a business agreement. However with a general partnership any partner is allowed to conduct business however they see fit without consulting with the other partner(s). All business decisions are legally binding.
•Profit Retention – All profit is dispersed based on the rules of the partnership agreement.
•Location – General Partnerships may be run from any location as long as the appropriate state/federal income taxes are reported.
•Convenience or Burden – General Partnerships are easy to form but carry substantially more liability compared to any other business structure.

Limited Partnership
Similar to a general partnership, a limited partnership is comprised of several partners. Where a limited partnership differs is that one or more partners can serve as an acting partner, responsible for all business decisions, accepting a greater liability. Also other partners may serve as non acting partners, whom yield day to day control while reducing their overall liability to only that of their vested interest in the limited partnership. The key characteristics of a limited partnership are:
•Liability –With Limited Partnerships only the acting partners can be held liable for debt and lawsuits. Non active partners can only be held responsible up to the amount invested into the partnership. This is different from a general partnership where all