Corporation can be sued but the shareholders cannot. This would protect you from being personally liable for the business debts and law suits. Corporations pay taxes on its profits and shareholders pay taxes on the dividends they receive. Formal record keeping is required. S Corporations avoid the double taxation and do not pay taxes on the income, only the stockholders pay on their distribution which is then reported on the shareholder’s personal income taxes (Kubasek, 2012).
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 business name rather than their personal name. However, the business is not considered a separate entity and the sole proprietor is still personally liable for all obligations incurred by the business.
SOLE PROPRIETOR DESCRIPTION most all new business start as sole proprietorships because of the simplicity to them. the only legal hurdle to starting a sole proprietorship is applying for the local permits and licenses that apply to the area of business. This is a very simple business organization to quit as well. When the owner wants to stop doing business they can simply stop taking new business. The owner has the ability to grow or contact its operation at will with no need to consult with a boss or board of directors most sole proprietorships operate on a small scale, the main factor that distinguishes a sole proprietorship is the sole responsibility of ownership and decisions.
They are easily started and typically do not require a large initial investment. Sole Proprietorships are businesses like the little mom and pop sandwich shop around the corner. They are started out by a single owner and are not separated financially from their owners. They may have separate banking information from the owner but taxation requires that the business and owner are one. The single most distinguishing feature of Sole Proprietorships is the unshared, unlimited liability and responsibility of the owner.
Although this is the easiest form of business to start, "the income and losses are treated as personal and will be filed on a Schedule C along with the regular Form 1040 tax return" (IRS, 2004). If profits are minimal, the owner will be paying less in income taxes with this form of business than with a corporation. However, the business owner is personally liable for all debts incurred by the business. Sole proprietorships cannot take advantage of special business income tax rates since all income is considered individual income. In addition, sole proprietors are not protected from personal liability if they get into trouble with a client.
There are tw... ... middle of paper ... ...IRS are C corporations and S corporations. Advantages are Corporations may be able to raise extra funds by selling shares in the corporation, corporations may remove the cost of benefits it offers to employees and officers, and some corporations may be able to choose treatment as an S corporation, which excuses them from federal income tax other than tax on certain capital gains and passive income. Disadvantages are forming a corporation requires more time and money than forming other business structures; Governmental agencies monitor corporations, which may result in additional paperwork, and Corporate profits may be subject to greater overall taxes since the government taxes earnings at the corporate level and again at the individual level, if such profits are distributed to the shareholders. Examples are Walmart, the oil industry, general electric, and Haliburton.
Shareholders can only be held accountable for their investment in company stocks. Corporations can increase funding through stock sales. A corporation may deduct the cost of benefits it provides. A disadvantage is the process of a corporation requires additional time and funding than other forms of organization. Corporations are monitored by federal, state and local agencies, and as a result may have additional paperwork to comply with.
Sole Proprietorship Sole proprietorships are typically businesses that have one owner. There many advantages to operating a business as a sole owner. One of those advantages is that it is fairly easy to form. When operating a sole proprietorship, filing an independent tax report for your business is not mandatory. It is optional for the owner to hire employees to help run the business.
A failure in business could lead to creditor's coming after the owners personal assets. • Liability: The owner is personally liable. No line between business and personal liability exists. • Income taxes: The business's taxes pass-through to the owner's personal taxes- that is to say that the business and owner are treated as a single unit. The owner's taxable income may be reduced through charging off business expense costs.
Of course you need to write a business plan, complete with cashflow forecasts etc but this was it. These businesses are easy to maintain and run. This is because the owner has little or no oppositon for her ideas and plans. Also, it is possible for the owner to act as their own accountant, saving them lots of money. The owner has an increased level of control, they have the rite to change the business whenever they feel like it and have the advantage of not having to call shareholder meetings.