SOLE PROPRIETORSHIP: Sole proprietorship is an independent business owned by one individual. Sole proprietorship businesses are relatively small and in most cases the financial resources of one person are adequate to cover operational expenditure. Characteristics of Sole Proprietorship 1. Simplicity – Starting a sole proprietorship is quiet simple. The only legal formalities are applying for the required state or local license or permit. If the sole proprietor wants to operate the business under a different name other than his, then a special filling certificate is needed. 2. Control – The sole proprietor has unlimited powers and responsibilities. The destiny of the company ultimately depends on the owner and therefore makes …show more content…
6. Liability – The sole proprietor has unlimited liabilities. Business will be negatively impacted and could go out of business if the owner lacks creativity and resources to stay in business. Also if the owner becomes incapacitated or died, then the company may be shut down. The sole proprietorship has unlimited financial liabilities because there is no distinction between the sole owner’s business assets and liabilities, and his own assets and liabilities. GENERAL PARTNERSHIP: General partnership is the type (created by oral or written contract) where each partner is actively involved in the company’s management. Each partner serves as agent of the other and has full authority to act for the company within the scope of its business operations. Each partner is also fully responsible for the debts of the business. Profits are equally shared between partners in general partnership. Characteristics of General Partnership 1. Simplicity – Starting a general partnership is quite simple. When two or more people agree to combine their resources and skills for mutual profit, then partnership is formed. A General partnership can be created orally or in writing. Even though oral contract may be upheld in court, best business practices calls for such agreement to be in writing in a form of articles of partnership 2. Control – In General partnership each partner is a principal and has equal authority with other partners. Each partner becomes an agent of
| A general partnership allows for a pooling of capital and talent and a sharing of the risk. Additional benefits to a general partnership include additional expertise in decision making and a sharing of the workload. General partnerships are easy and inexpensive to start up.
Many believe that liability is a biggest issue in a general partnership than in a sole proprietorship. The owners of the company are still fully liable for any debts the company may accrue as well as the liability for any lawsuits that may be brought against the company. However, the bigger issue in a partnership is that now each partner can be liable for the other partner’s actions. If one partner is sued for malpractice, the other partner may suffer because of it.
2. 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
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
Liability- This falls directly on the owner. All debts, liabilities and losses fall on the owner. The owner's assets can be used to alleviate the business's debt.
A sole proprietorship is a form of business that is owned by a single individual. • Liability – Due to the lack of legal distinction between the owner and the business, the owner is fully responsible and liable for all debts that the business incurs in the same manner that an individual is fully responsible and liable for all debts that they incur. There is no legal distinction between the assets of the owner of the sole proprietorship and the business; this means that creditors have the ability to come after the owner’s business and personal material assets. Income Taxes – Since the business is the same as the owner of the sole proprietorship, all profits or losses from the business are filed by the
LIABILITY – There is no separation between the individual and the business. As the owner and operator of a sole proprietorship, all of the profit and loss is the personal responsibility of the business owner creating unlimited liability.
Liability: The owner/operator of a Sole Proprietorship is subject to full and unlimited financial liability for the business. The owner and the company are legally the same entity. The company’s assets are legally the same as the owner’s personal assets.
LIABILITY – The owner is held responsible for all debts and expenses accrued by the company via the concept of unlimited liability. If the expenses and debts aren’t satisfied, the owner of the business can be sued for breach of contract.
* Unlimited Liability - The liability of the sole proprietor is unlimited. This implies that, in case of loss the
General partnerships are legally recognized entities, with a separate identity and existence. Creation, regulation, and characteristics are commonly defined and controlled by state law and may vary. However, despite such variations, many states have adopted common provisions of the Uniform Partnership Act (UPA).
Limited partnership: Owners are distinguished as either general or limited partners. Limited partners are only liable about their contribution to the partnership involving funds, equipment and other property.
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.
Sole traders have unlimited liabilities,meaning that in terms of law there is no separation between them,hence the sole trader is also liable for the debts incurred within the business, which makes it very risky to run for a long-term.