A sole proprietorship refers to a form of organization owned by a single individual. In this business, a single person makes all the decisions and does not have to engage a legal department to approve contracts. The owner of such a business can only use personal funds even though he or she may have separate checking and savings accounts for the business.
The first characteristic of this form of business enterprise is liability. A sole proprietor suffers from unlimited liability. The owner becomes liable personally for all the obligations and debts of the business. The second characteristic is income taxes. Businesses pay federal income tax just like individuals. In ...view middle of the document...
This includes documents such as personal financial statements since the owner and the business are the same thing. Some of the disadvantages associated with a sole proprietorship are that it can be difficult to raise working capital. A sole proprietor faces unlimited liability. He or she is liable for all debts and obligations of the business.
A general partnership refers to an associated of two or more individuals in an unincorporated entity to carry out business, as well as share profits and losses (Flat World Knowledge, 2013). The first characteristic that applies to this form of business organization is liability. Each partner in a general partnership is severally and jointly liable for the debts and obligations of the partnership. The second characteristic is income tax. A general partnership faces the same taxation as a sole proprietorship. Income comes from the business and goes to the partners involved. They then pay the usual income tax on the income of the business. The third characteristic is control. In the general partnership, all partners have an equal voice in the management of the business. However, they can modify this as they wish through a contract. The fourth characteristic is profit retention. All the profits in a general partnership are shared equally among the partners. In addition, the partners also share losses equally should they occur. The fifth characteristic is location. To move or expand the business into a different state, all the partners have to come to a mutual agreement. Just like a sole proprietorship, there is no legal involvement in the partnership. The document required to relocate the business are a signed document showing that all the partners have consented to the relocation. This assures that the interests of all the partners are met. The sixth characteristic is convenience or burden. Just like a sole proprietorship, there are no additional requirements or extra workload placed upon the business to comply with all reporting, meetings, among others.
The advantages of a general partnership are that all profits and losses are shared equally among the partners. All the partners have an equal voice in the management of a business unless they agree otherwise on the contract. The disadvantages of a general partnership are that sometimes it becomes difficult to value the share of a withdrawing business partner. Another disadvantage is that all partners are liable for the debts and obligations of the business. For example, a partner may be innocent about a wrongdoing committed by another partner. However, they are still liable for that partner's malpractice (SkillSoft Corporation2, 2002).
A limited partnership is a partnership that has both limited and general partners. A limited partner enjoys limited liability in the partnership. The most limited partner can lose is only his investment into the business and nothing else. These partnerships are formed in a...