INTRODUCTION
If you have decided to start a business, or if you have already started one, it is important to decide what legal form of business will work best for you. There are three main forms of business to choose from. These are sole proprietorships, partnerships, and corporations. If you are going to start a business alone, you can choose between a sole proprietorship or a corporation. If you are going to start a business with at least one other person, you can choose between a partnership or a corporation.
There are important legal differences between the three forms of business. For example, both sole proprietors and the partners of a partnership are not considered legally separate from the business. The owners are personally responsible for every aspect of the business, and any profit or loss must be included on the personal income tax return of each business owner. In comparison, a corporation is considered legally separate from its owners. The owners of a corporation do not usually have personal liability for the debts of the business or for any lawsuits that arise and the corporation is taxed separately from its owners.
There are many factors to consider when choosing the legal form that is best for your business. As a business grows, the advantages of the corporate business form usually outweigh the disadvantages. A lawyer can help you determine which form of business is best for your situation. In this jobI want to tell more about the adventages and disvantages of the different legal forms of business.
SOLE PROPRIETORSHIPS
A Sole proprietorship is a business that is owned by one person. It is simplest type of business to start. There are several important features of a sole proprietorship. First, the business and the owner are consider to be one entity under the law. Second, all of the assets of business are personally owned by the sole proprietor. Third, the sole proprietor is not considered an employee of business. Because of this, the sole proprietor is not eligible for employment insurance if the business fails. The sole proprietor is not paid a salary, but instead can take money from the business throught personal drawings.
One of the advantages of being a sole proprietor is that you can be your own boss. You can make business decisions without having to ask anyone else. You also get to keep the profits from the business and you have the freedom to end your business whenever you want. A sole proprietorship is the easiest form of business to start. And, although you need to keep separate accounting records for the business, you only need to file tax return.
Owning a sole proprietorship also has disadvantages. The owner is personally responsible for all aspects of the business.If the business is being sued, so is the business owner. If the business owes money, the business owner is responsible for the debt, and the owner may have to use personal assets to pay. If the owner can not pay the debts of the business, he or she may have to claim personal bankruptcy. The only way to transfer ownership of a sole proprietorship is to sell the entire business to someone else.Otherwise, the life of business ends when the proprietor dies.
PARTNERSHIP
A Partnership is an unincorporated business that is carried on by two or more people who intend to share the business profits. Partnerships have at least five important features. First, a partnership can be created by an express agreement or it can be created if the people are simply acting in a way that seems like a partnership. Second, the partners can be held responsible for the actions and business debts of the others partners. Third, all the assets of the business are personally owned by the partners. Fourth, there are two main types of partnerships: general partnership, where all the partners share the profits and losses of the business: limited partnerships, where the limited partners are not involved in the daily operations and are only responsible for losses up to the amount they contributed to the business. Fith, partners are not eligible for employment insurance if the business fails. Partners are not paid a salary, but they can take money from the business throught personal drawings.
It is a good idea to put partnership agreement in place because it will outline issues such as how the profits or losses will be devided among the parners, and it will describe any limits to the legal responsibility of the partners.
Being a partner in apartnership has several advantages and disvantages, including important tax implications.
There are three main advantages to forming a partnership.
First, a partnership allows two or more people to work together and bring different skills and resources to the business. Second, a partnership is fairly easy to establich. The actual registration of the partnership is not expencieve or complicated. Howewer, it is good idea to decide how the partnership will be run and put into a partnership agreement. Third, if the partnership suffers a loss but the partners have others employment income, the loss can be used to reduce theis taxable income, therebly lowering the income tax payable by The partner.
There are five main disadvantages to forming a partnership. First, because the partnership is not considered to be separate fromits owners, the partners are personally responsible for labilities of the partnership. If the business fails, the partners will be
personally responsible to pay all the debts and obligations of the partnership. Second, because each partner is an agent for the business and for the other partners, each partner is personally responsible for the actions of the other partners. If one of the partners makes a bad business decision, or acts negligently which results in the partnership owing a debt, all of the other partners are personally responsible to pay it back.Third, because a partnership is based on the individual partners, and it is not a separate legal entity, if one of the partners dies, the partnership ends. This means that the remaining partners have to re-establish the partnership.Fourth, because a partnership is not a separate legal entity, it is difficult to buy or sell a partnership interest. Buying or selling a partnership interest will involve rewriting the partnership agreement and determining exactly how the partnership will change.Fifth, although the resolution of disagreements amongst partners is generally covered under a partnership agreement or case law, it usually is very difficult. There is no Act that exists which sets out rules for settling partnership disputes. If the disagreements are not resolved by the partners themselves, they will usually have to turn to outside help which can be time consuming and costly.