gfc Chapter Six
Business Formation: Choosing the Form that Fits
Review Questions
Describe the basic features that distinguish the four basic forms of business ownership: sole proprietorships, general partnerships, C corporations, and limited liability companies.
Sole propietorship. is a business that is owned, and usually managed, by a single individual. earnings are treated just like the owners income; likewise, any debts the comany incurs are considered to be the owners personal debts.
General Partnerships. Voluntary agreement under which two or more people act as co-workers of a businees profit. each partner has the rigth to participate in the companys managment and share in profits, it also has unlimited liability for any debts the company incurs.
Corporation. Business entity created by filing a form with the appropiate state agency. a corporation is considered to be legal entity that is separate and distinct from its owners. the owners have limited liability, they are not personally responsible for the debts and obligations of their company. Limited Liability Company. (LLC) . a form of business ownweship that offers both limited liability to its owners and flexible tax treatment.
Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC?
It’s the easiest and
| In a sole proprietorship, the business and single owner are one in the same. A single owner makes all decisions with regard to the business and the single owner retains all profits earned by the business. The single owner is also responsible/liable for all debts and obligations of the business on a personal level.
A corporation is a separate legal entity that possesses distinctive liabilities and privileges than that of their members or shareholders. As an investor, a corporation’s advantage is liability for their own investments especially in risky investments (Kubasek, et al., 2012, p. 760). Among the various types of corporations for Betty to select from, an S corporation is an enticing venture for new entrepreneurs given that it grants limited personal liability for debts, sharing of corporate profits, and taxation relief. Double taxation is a main disadvantage of C corporations but not for S corporations. The General Corporation Law (Corp C §§100-2319) treats S corporations similarly to partnerships for taxation purposes.
1) Describe the basic features that distinguish the four basic forms of business ownership sole proprietorships, general partnerships, C corporations, and limited liability companies.
Sole Proprietorship. Sole owner of a business. The manager and the owner is the same person. The sole proprietorship has unlimited liability. You pay taxes as owner and
Sole trader is where a business is run as an individual; so that all profits are their own after tax has been paid on them. Within a sole trader organisation it is possible to employ staff, as the sole trader only means that you own the business personally and do not actually have to work by yourself.
Sole proprietorships are the most common type of business in the U.S. They are most commonly chosen because they are the easiest type of business to set up and give the sole owner of the company complete control of the company. There are many benefits to a sole proprietorship in regards to control, profit retention, and convenience.
1. Describe the basic features that distinguish the four basic forms of business ownership: sole proprietorships, general partnerships, C corporations, and limited liability companies.
In Task 2, the owner is correct in his need to move away from a sole proprietorship and into an entity where his personal assets will be shielded in the event of a business failure. There seem to be three major ways to remove this liability, which include a C-Corp, S-Corp and LLC. For this situation, I would recommend an LLC for the business owner and will explain why it will benefit him in the issues of liability, continuity, income taxes, profit retention and control.
Sole Proprietorship Sole proprietorship is the most common form of business in the United States. It is a relatively simple way for an individual to start a business since legal costs and business requirements are minimal, and the owner has complete control over the business. Though a sole proprietor is not responsible for any corporate tax payments, the owner is responsible for taxes incurred on the income generated from the business as part of his or her personal income tax payments, and personally shoulders any other risks or obligations. A sole proprietor may also choose to file their business under a fictitious business name or a DBA (doing business as), allowing him or her to operate and market the business under a more typical
Sole proprietorship: Is the simplest and most common business structure. There is no legal distinction between the proprietor and the business, which means it is autonomous. You are entitled to all profits and responsible for all your business's losses and liabilities.
There are seven forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company (including the single member LLC), S Corporation, Franchise, and Corporation.
There are seven forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company (including the single member LLC), S Corporation, Franchise, and Corporation.
Limited liability Company (LLC): Business’ owners are only subject to limited liability for company’s debts and actions. Owners will be only liable for their own mistakes or negligence that they may show in occasions.
The advantages to the sole proprietorship are single control over the business and its decisions, easy to start up, less regulations and paperwork burden that the other types of business. The disadvantages are unlimited liability for their company debts and actions. The law does not recognize any distinctions between the owner’s business assets and personal assets. Banks are very skeptical about lending to these types business because there is only one person to hold liable for repaying the debt.
Is the most common business type, where the business is operated and owned by a single individual. In this type of business, the sole proprietor provides capital, does not share profit or loss and runs the business alone. As such, the business and the owner are indistinguishable for tax and legal purposes (Dlabay, 2011). To differentiate this business from other business types, a sole proprietorship is discussed under the following characteristics.