LIT1 task 3 Essay

Submitted By ostrowsr1
Words: 3852
Pages: 16

The Sole proprietorship is the most basic way that a single person can own and operate a business it basically refers to a single person ownership of a business and that they are entirely responsible for the business along with any financial, legal or tax ramifications incurred by the business. In a sole proprietorship the owner usually chooses to operate under a fictitious name or (DBA), like “Joes Bar and Grille”. The DBA is simply a trade name—and it does not form an entity that separates it from the sole proprietor/owner.
The sole proprietorship is one of the most popular forms of business based largely upon, how easy it is to setup, and the low overhead and operational expense. In most cases the sole proprietor is only required to register the name of the business and obtain any necessary local licenses and or permits of operation, and then they are allowed to begin business operations. A clear disadvantage in forming a sole proprietary business, is that the owner is always responsible for all of the debts that are incurred by the business. In the event that the business experiences any legal issues wronged parties can file law suits against the business owner personally and if these suits are successful, the owner will be required to pay the business’s debts out of personal funds.
The sole proprietor normally is the only person who signs contracts on behalf of the business, due to the fact that the sole proprietorship has no real identity apart from its owner under the law. The sole proprietor of a business most likely will have all payments for services rendered made to them personally, and unlike most other forms of business it is perfectly acceptable to mix both personal accounting and business accounting, this is something that is strictly forbidden under the law for corporations to engage in.

Tax Implications
Sole proprietorship taxes are also very easy to understand and follow. All of the income earned by the business is income that is also earned by its legal owner. The sole proprietor reports any income, losses, and or business expenses by filling out and filing a 1040 business tax form, along with the standard schedule C IRS form. The "bottom-line amount" from Schedule C is then transferred and reported on your personal tax return. This is very appealing to many business owners because any and all business losses you suffer will offset any other earned income.
When operating as a sole proprietor you are not required to pay any unemployment tax on yourself, however you will be required by law to pay unemployment tax on any individuals that are employed by the business. This can sometimes create problems due to the fact that, you are not eligible to receive any unemployment benefits if the business were to not be successful and you are forced to shut down the venture.

Reasons in support of a Sole Proprietorship
• Ease of establishment.
•Very few if any formalities.
•No requirement to pay Un-employment tax on themselves (However under the law they are required to pay unemployment taxes on any and all employees).
•able to comingle personal or business funds.
Reasons not in support of a Sole Proprietorship
•Owners are responsible by law for all debts incurred by the business.
•Owners are not allowed to sell interest in the business.
If you plan for your business to be owned and operated by more than one person, you may wish to consider the possibility of forming a general partnership. There are two forms of partnerships: general partnerships and limited partnerships. Under the rules of a general partnership, the partners manage the company and take responsibility for all accounting and legal issues of the business. In a limited partnership the general partners own and operate the business and take on all risk and potential liability for the partnership, and the limited partners serve only in the capacity of investors…