Essay About Business Types And Sole Proprietorship

Breadtalk Group 1 – Business Types of Ownership
Breadtalk Group 1 – Business Types of Ownership
Business Types of Ownership
The pros and cons of different business types of
ownership, including sole proprietorship, partnering,
corporations, and limited liability companies.
One of the first decisions that you will have to make as a business owner is how the company should be
structured. This decision will have long-term implications, so consult with an accountant and attorney to help you
select the form of ownership that is right for you. In making a choice, you will want to take into account the
following:
Your vision regarding the size and nature of your business.
The level of control you wish to have.
The level of structure you are willing to deal with.
The business vulnerability to lawsuits.
Tax implications of the different ownership structures.
Expected profit (or loss) of the business.
Whether or not you need to reinvest earnings into the business.
Your need for access to cash out of the business for yourself.
Sole Proprietorships
The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person,
usually the individual who has day-to-day responsibilities for running the business. Sole proprietors own all the
assets of the business and the profits generated by it. They also assume complete responsibility for any of its
liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.
Advantages of a Sole Proprietorship:
Easiest and least expensive form of ownership to organize.
Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they
see fit.
Sole proprietors receive all income generated by the business to keep or reinvest.
Profits from the business flow directly to the owners personal tax return.
The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship:
Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their
business and personal assets are at risk.
May be at a disadvantage in raising funds and are often limited to using funds from personal savings or
consumer loans.
May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to
own a part of the business.
Some employee benefits such as owners medical insurance premiums are not directly deductible from
business income (only partially deductible as an adjustment to income).
Federal Tax Forms for Sole Proprietorship:
(only a partial list and some may not apply)
Form 1040: Individual Income Tax Return
Schedule C: Profit or Loss from Business (or Schedule C-EZ)
Schedule SE: Self-Employment Tax
Form 1040-ES: Estimated Tax for Individuals
Form 4562: Depreciation and Amortization
Form 8829: Expenses for Business Use of your Home
Employment Tax Forms
Partnerships