LIT 1 Task 310
Part A
When a business forms, the owner or owners must decide how to classify it. The type of classification will ultimately determine the rules under which the business will operate. Six general types of business entities exist with multiple variations thereof. Each type of business entity has advantages and disadvantages and there is no one type of entity that’s better than another. Business owners must decide how their business should be classified based on their individual and unique needs. Several factors will influence the business owner’s decision. These factors include liability, taxes, longevity, control, profit retention, location, and burden.
Sole Proprietorship
The sole proprietorship is the most basic type of business. Anyone can start one with little effort. As long as the owner’s name is in the name of the business, no paperwork is necessary. The following advantages and disadvantages exist with a sole proprietorship:
Liability- The owner takes full responsibility for the business and its activities. For example, if the business is unable to pay its bills, the owner will be held responsible for payment.
Income Taxes- The business is not subject to a separate tax. The earnings are taxed as the owner’s personal earnings and any losses are written-off of the owner’s tax return.
Longevity/Continuity- Once the owner decides to cease business activities or dies, the business dissolves.
Control- Only the owner is able to control the business and make decisions. Partners are not permitted to own this type of entity.
Profit Retention- The owner retains all of the profits and does not need to be concerned with splitting profits or dividends.
Location- Only a single location can exist for this type of entity. If the owner moves, so does the business.
Convenience/Burden- Sole proprietorships are very convenient with little burden. There aren’t any regulatory requirements except for filing a DBA in the event the business name does not contain the owner’s
When a business forms, the owner or owners must decide how to classify it. The type of classification will ultimately determine the rules under which the business will operate. Six general types of business entities exist with multiple variations thereof. Each type of business entity has advantages and disadvantages and there is no one type of entity that’s better than another. Business owners must decide how their business should be classified based on their individual and unique needs. Several factors will influence the business owner’s decision. These factors include liability, taxes, longevity, control, profit retention, location, and burden.
Sole Proprietorship
The sole proprietorship is the most basic type of business. Anyone can start one with little effort. As long as the owner’s name is in the name of the business, no paperwork is necessary. The following advantages and disadvantages exist with a sole proprietorship:
Liability- The owner takes full responsibility for the business and its activities. For example, if the business is unable to pay its bills, the owner will be held responsible for payment.
Income Taxes- The business is not subject to a separate tax. The earnings are taxed as the owner’s personal earnings and any losses are written-off of the owner’s tax return.
Longevity/Continuity- Once the owner decides to cease business activities or dies, the business dissolves.
Control- Only the owner is able to control the business and make decisions. Partners are not permitted to own this type of entity.
Profit Retention- The owner retains all of the profits and does not need to be concerned with splitting profits or dividends.
Location- Only a single location can exist for this type of entity. If the owner moves, so does the business.
Convenience/Burden- Sole proprietorships are very convenient with little burden. There aren’t any regulatory requirements except for filing a DBA in the event the business name does not contain the owner’s