Good Example Of Proprietorship And General Partnership Essay

Sole proprietorship is the most common form of business where one person performs all the functions required to form a successful business. The business owner carries the responsibility for all the liabilities and said to be self-employed. When two or more people decide and start a business together, they form a business partnership. This partnership may be general partnership or limited partnership. In the general partnership, the partners carry equal aspects of the business including the liabilities of the partnership. Unlike sole proprietorship, partnership may have an unlimited number of partners responsible in the ownership of the company.
Sole proprietors have full control and day to day management of the business. This allows the owner to make faster decisions as there are no formal meetings held to deliberate the course of business. This allows them to react faster to the changing markets trends in comparison to partnerships. I n partnerships, more than one partner makes the decisions affecting the company. This allows the partners to brainstorm and enact the perfect idea for the business. This mostly leads to good decision making.
Sole proprietor may use the capital for the business anyhow or decide to plough the money back into the business. Sole proprietors are not under the law to separate their personal assets and the business assets while running a business. In partnership, the profits and losses are shared equally by all partners. Partnership agreement may stipulate how each partner owns the business depending on his contribution to the business. Sole proprietors have unlimited liability for business debt, lawsuits and other business obligations. They are liable for their negligent acts or any losses incurred in the business transaction. Partners are personally liable for negligent acts of other partners such as bad decision making. Sole proprietorship ends after when the owner dies, retires or sells the business. Partnership may continue despite the death of withdraw of one or more partner.
General partnership is business entities where each partner has total liabilities for the actions and debts incurred as a result of the partnership. Management of the business and sharing of profits and losses is equal among all partners. Each partner has unlimited liabilities of the actions of the partnership, including actions of other partners. Partnerships assets, as well as personal assets, are susceptible to the liability in case legal action, are taken against the business. This should be considered before forming the partnership agreement.
Limited partnership has more advantages that general a partners do not enjoy. Limited partners have their liabilities for debts limited to their extent of their investments in the business. The personal properties are not engaged in the business in case of debt or legal proceeding as are those in general partnerships. Limited partners lack management authority or input towards the management of the business. Management of the business is under one partner who is known as a general partner and is compensated management fee. General partnerships are formed when people with skills and personal expertise invest in the business, and each would like to take part in business. In a limited partnership, the partners raise capital for business startups or acquisitions where partners do not have to be equipped with the skills for running a business.
Limited partnership gives the general partner the freedom to run the business smoothly and also protects the limited partners from the liabilities of the business. Limited partners may choose to be more involved in the business but not at their risk but in the law, their involvement in business may render them to general partners. Limited liability partnership is a legal entity. The law recognizes the business as a distinct intuition from its owners; this means the business is answerable to legal proceedings in a court of law. General partnership is not a legal entity business, and the partners are answerable and liable to any misconduct or liability of the business
In limited liability partnership, the law stipulates that a minimum of two partners is eligible to start a business with no maximum. In the general partnership, a minimum of two and a maximum of twenty are legible to start a business. This excludes the professional practice partnerships which do not have a maximum.
C-corporations are business structures created as distinct legal entities from their owners. They have their bank details, properties and can also establish their line of credit. Stockholders are not liable to the debts of the corporation, and this safeguards the assets and properties of the shareholders. C-corporations tax benefits from the governments and there is prestige for the business and shareholders and ability to raise capital and attract investors. C-corporations raise capital through selling stocks. Investors can be lured by the prospect of dividends if the corporations make a profit. C-corporations enjoys fringe benefits from their taxes as a business expense. Shareholders are exempted from paying taxes on this fringe benefits. This also incorporates the employees of the corporation and not only the shareholders. Death or transfer of shares does not affect the corporation in any way. Partners frequently buy business shares, and this allows the business to continue.
Corporations are governed by states, and this leads to complex bureaucracies and expenses. Shareholders and board of directors must hold a meeting and minutes stored. This bureaucratic burden arises when corporations contact the courts as it must be represented by lawyers unlike in sole proprietors where business owners represents themselves. The structure of the corporations involves the shareholders, who own the stock and responsible for electing the board or directors, changing the laws and also approving major decisions such as mergers. The directors manage the corporation and are mandated to issue stock and making major decisions. The officers are involved in making daily decisions on how to manage the business while the employees receive a salary in return to their service to the corporation.
S-corporations do not pay corporate taxes but transfer their income, losses and their credit to their shareholders through distributions. S-corporations files annual federal tax returns reporting income and distributions. S-corporations are less likely to have more than one hundred stockholders or partnerships. Individuals, trust or estates may be entitled to hold tock in S-corporations. Financial institutions such as insurance companies are ineligible to become S-corporations. Registering as a corporation is the first step to registering as s-corporations, or a limited liability company the resolution must be passed by the members in the annual general meeting.
S-corporations conduct way just like other businesses although the wages are subject to withholding; distributions to the shareholders are not withheld. Dividends earned from the stock may not be reduced by the S-corporations and must be passed along to the shareholders. Although the tax benefits may depict them as the best options, some states do not fully recognize them and tax them just like the C-corporations. Before registering any corporation to as an S-corporation, it is advisable to consult a professional CPA in order to determine if the state corporate regulations will fit the organization.
Limited Liability Company is a common type of business among the entrepreneurs due to its liability protection of its members and flexibility in terms of taxation and management. Limited Liability Company have separate legal entity and existence which is separate from its members. Limited Liability Company can purchase and dispose of property, hire and fire employees, create lawsuits and defend claims against it. Limited Liability Company is not affected in any way by withdrawing of any member or death of any member. It offers a limited liability to its members especially from wrongs committed by the partners. This allows the members the freedom to hire employees to manage the business.
Limited Liability Company are also characterized by flexible taxation regime. In most cases, they are taxed as a sole proprietorship or multimember organizations. This flexibility gives its members ability to choose the taxation formula that is most sensible to the business. Limited Liability Company are characterized by simplicity in the documentation process and the operations. Unlike the shareholders in the corporations, they do not appoint the board of directors to run a business.
For business startups, the most appropriate form of business is a partnership. Partnership allows people to pool their resources together to achieve the capital requirement of the business. Different people have diverse skills that may impact business positively, and this helps much in decision making. Partnership allows people to exchange ideas and avoid monopoly of ideas, and this is healthy for the business.