Essay on LIT1 Task 310

Submitted By claudia1177
Words: 1736
Pages: 7

LIT1 Task 310.1.2-01-06

Part A

Sole Proprietorship: It’s one owner that is no required to register the business. But, it would have to register their business if it requires specific materials or if the owner opens the business under another name.
An advantage is that the owner can write off some expenses when doing taxes, it is a simple business to open, run and maintain. The business can be also taxed as a “single unite” and they make all decision with complete control. A disadvantage is that they do have to pay taxes for any net profit; the owner is responsible for any debts of the business. They are less likely to have investors invest to them.
Liability: The business and the owner are one and they are responsible for all of the obligations in the business.
Income Taxes: A Sole Proprietorship will have to file the taxes as an individual. They have to make sure they pay self-employment taxes and all or some of the profits from the business.
Longevity/Continuity: A Sole Proprietorship can close its business at any time. The business is very limited but a great way to start a business even though they can close because they want to retire or they happen to pass away.
Control: The owner controls every action and decision that is done in the business.
Profit Retention: The owner keeps the profits of the business.
Compliance/Convenience/Burden: It is easy to set up a Sole Proprietorship business and the owner has complete control of any decision making.
Location: Can be located anywhere as long as they implement state regulations. Also, some cities may require you to register your business.

General Partnership:
A partner that is more involved with the business and can manage the business. Must have two partners and agree to share profits and losses of the business.
An advantage for a General Partnership is that it’s easy to build, you can report any personal income lost on your taxes.
A disadvantage for a General Partnership is that each partner is responsible for any debt and obligation in the business. When paying taxes, any net profits that are made must be paid by the owner’s person income tax.
Liability: Each partner is responsible for all of the debts even if one partner cannot afford it.
Income Taxes: Must file the “information return” form and you can write off your partnership loss to balance out your personal income. Partners should also give each other a copy of a Schedule K form; it must obtain shares of any profits made on each partner.
Longevity/Continuity: If one of the partners wishes to sell their share, it must be an agreement between all parties. Otherwise if one decides to leave, the business can be demolished.
Control: The owner interacts with business management and decision making.
Profit Retention: Any profits of the business are distributed equally between the partners, except if another agreement was made between the partners.
Compliance/Convenience/Burden: The benefit of a partnership is that you don’t have the financial responsibility on one person and it’s not overwhelming.
Location: Does not require to be registered by the state; only have to obtain a local business license.

Limited Partnership:
The partner is not allowed to manage the business on a daily bases and is not obligated to be fully financial responsible.
The advantage of a Limited Partnership is that only one partner can be with a General Partner. The limited partner can leave at any time without dissolving the limited partnership.
The disadvantage of a Limited Partnership is that it may be more cost effective than a general partnership. Need to make sure that it does not have more that 2 of the characteristics otherwise it will be taxed as a corporation.
Liability: The owner(s) are liable for any capital invested that was put into the business.
Income Taxes: Partnerships are a flow through entity and to avoid being taxed as a corporation, it cannot have more than two corporate characteristics.