Business Structures Defined Essay

Business Structures Defined Essay

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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 all major decisions. Also the sole proprietor manages all major functions such as financial and sales.

3. Convenience – The sole proprietor is his own boss. He does not report to anybody when making company decisions. No third party or outside criticism/disapproval if wrong choices are made. No business charter from the state, or company regulations to regulate or reduce his authority. The sole proprietor can at his own will, expand the business operations, give it out on contract or outsource it. He can seize/ignore business opportunities, sell or liquidate the business or even relocate to another place.

4. Profit Retention – All profits of the business are personal income to the sole proprietor. There is no partnership to share profits, and there no shareholders to claim dividends. Other profit in the form of donations, gifts, etc.

5. Taxes – The sole proprietors and his business are taxed as a single-unit. There is no separate federal income tax reporting (pass-through taxation) and ...

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...nutes meeting.

4. Profit – Limited Liability Companies have flexible distribution of profits. Unlike common partnership where profit is shared equally, LLC have much more flexibility.

5. Taxes – LLC can decide to be taxed as a sole proprietor, partnership, S-corporation or C-corporation, providing much flexibility and choices known as “check-the-box taxation”. Under the default tax classification, profit is taxed at the membership level and not at the LLC level (non-double taxation)

6. Liability – A LLC exist as a separate entity much like a corporation. Owners of a LLC, called “members” are protected from the liabilities and debts of the corporation and so cannot be held personally responsible unless they have signed a personal guarantee. On the other hand, LCC has a limited life, i.e. the company will be dissolved when it goes bankrupt or a member dies.

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