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Business Entities Essay

866 words - 4 pages

Sole Proprietorship
This is a business run by one individual for his or her own benefit. It is the simplest form of business organization. Proprietorships have no existence apart from the owners. The liabilities associated with the business are the personal liabilities of the owner, and the business terminates upon the proprietor's death. The proprietor undertakes the risks of the business to the extent of his/her assets, whether used in the business or personally owned.
Single proprietors include professional people, service providers, and retailers who are "in business for themselves." Although a sole proprietorship is not a separate legal entity from its owner, it is a separate entity ...view middle of the document...

Articles of incorporation must be filed with the state to establish a corporation. Stockholders' are protected from liability and those stockholders who are also employees may be able to take advantage of some tax-free benefits, such as health insurance. There is double taxation with a C corporation, first through taxes on profits and second on taxes on stockholder dividends (as capital gains).
Small Business Corporation (S-Corporation)
Subchapter S-corporations are special closed corporations (limits exist on the number of members) created to provide small corporations with a tax advantage, if IRS Code requirements are met. Corporate taxes are waived and reported by the owners on their individual federal income tax returns, avoiding the "double taxation" of regular corporations.
Advantages/Disadvantages
Sole Proprietorship
Simplicity of organization-this is the most common form of business organization in the United States because it is the easiest and least expensive to establish.
Minimum legal restriction-fewer reports have to be filed with government agencies. There are no charter restrictions on operations.
Ease of discontinuance-the business can be terminated at the will of the owner.
The owner is truly the boss, making all decisions, keeping all profits, and assuming responsibility for all losses and debts.
Difficulty in raising capital-this can be a problem since an individual's resources are typically less than the pooled resources of partners.
Limited life of the business-untimely, unanticipated, or unplanned removal of the proprietor from the operation of the business may have ramifications for creditors.
Unlimited liability-this is by far the greatest disadvantage to the proprietorship. Even though proprietors may invest only part of their capital in...

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