LIT1 Task 1 Part A (the report)
SOLE PROPRIETORSHIP: A sole proprietorship is the simplest, quickest and cheapest form of business to start making it the most popular types for first time business owners. A business owner and a sole proprietor may operate under different names, but legally, they are the same entity. Which leads to one of the biggest disadvantages of becoming a sole proprietor; the owner is responsible for all debts and fault created by the business. One of the major advantages to starting a sole proprietorship is the simplicity behind the formation. There is very little paperwork that needs to be filed at the inception and it takes very little work to keep the business ...view middle of the document...
The business of a sole proprietor will end when the sole proprietor passes away. There are ways around the limited continuity, for example a will that states the business is to be continued by a specified person.
* Control: Ultimate control of a sole proprietorship is left up to the owner. The owner (unless delegated) is completely responsible for all financial and daily managerial decisions. There are no shareholders or board members to answer to. The owner of the company can always hire a manager or supervisor to take control of daily tasks.
* Profit Retention: As explained in the income tax section, profit from a sole proprietorship is also considered the sole proprietor’s income. The return on investment should be relatively high as long as the company is profitable.
* Relocation and Expansion: If the company decides to expand and/or relocate, that decision is left up to the sole proprietor. There is no need to create a separate legal identity if expanding or relocating to another state. Each state has its own laws, most require a dissolution form to be completed when the company moves (or dissolves). Once the business has moved, it will need to follow all of the laws put forth by the new state. There are no advantages or disadvantages to state tax assessment for the business because a sole proprietorship’s profits are considered income and will be taxed at the income level.
* Compliance: Each state will have its own regulatory compliance laws that will need to be followed when establishing a sole proprietorship. Because of the simplicity behind forming a sole proprietorship most companies can form by following these four simple steps: “choose the company name, file a statement of trade name of an individual, obtain licenses and permits that pertain to your type of business and if there is more than one employee, you must file for your employer identification number” (NOLO, n.d.).
GENERAL PARTNERSHIP: A general partnership is similar to a sole proprietorship when it comes to liability, taxation, simplicity, relocating and compliance. The main difference between the two is a general partnership has more than one owner. Usually general partners work off of each other, one partner may be good at managing accounts, while the other has the talent to build the widget being sold. The advantage to a general partnership compared to a sole proprietorship is that the responsibilities are split. Like the sole proprietorship, the general partners and the business are legally no different. Therefore, the biggest disadvantage of a general partnership is the unlimited liability of the owners. Another disadvantage of a general partnership is the limited continuity. If one partner dies or if one partner decides to quit the general partnership is dissolved.
* Liability: Like a sole proprietorship, legally, there is no difference between the owners and the business. The business owners are liable for any debts and...