Legal Forms for a Business
Legal Forms for a Business
An example of sole proprietorship business is a neighborhood barber shop. This business is typically owned by a single person. This sole proprietorship is the easiest business to start. All business expenditures are responsibility of the owner. Sole proprietorships do not have liability shields and the income tax must be filed with the owner’s individual tax. The owner normally has to invest their own money to start up the business. This can sometimes create a problem getting the business off the ground, especially, if the owner does not have or cannot obtain additional financing from a lender. One of the biggest disadvantages of sole proprietorship is the owner has fully liable for all aspects of the business. The sole proprietorship business such as a barber shop has its advantages to include but not limited to the following: owner has full rights to do as they please with the business, limited tax penalties, cheaper than other business to start, and self investment.
A partnership business is an agreement between two or more people involved. In this scenario, I’ll continue the use the neighborhood barber shop. The owner of the barber shop decides to finally give his son part ownership of the business to keep it in the family. Therefore, both agree to a partnership to run the barber shop business. This agreement can be verbal or written. It is probably safer and provides and audit trail to have the agreement written and signed by both partners. According Berlin, if you do not have a written partnership agreement, you will be stuck with the provisions that your states laws dictate (2012). Both parties hold equal rights, responsibilities, and liabilities of the business. In this case, the son does not need start up money unless the owner requested an initial buy-in. If this business was starting from the ground both parties may be liable for the start up fee depending on the prearranged agreement. Similar to sole proprietorship, a partnership business can allow both parties to file the gains and losses on their individual income tax. The key to a partnership business is trust. Kumar stated (2011), some advantages of the partnership business are easy formation, sharing or risk, protection of minority interest, and diverse skills and expertise. According to Schreter, a big disadvantage of partnership business can be a change in professional priorities. Breaking up with a business partner is similar to going through a divorce. (Schreter, 2012).
“Limited Liability Partnership (LLP) is one of the newest business organizations. It is a body corporate, in the same way as a private limited company, and as such, has separate legal personality to the partners. In its own capacity and name it can hold property, employ people, enter into contractual obligations, incur debts and bring and defend proceedings” (Wilson, pp. 183). The