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.
i. Liability: Incase of business debts, the owner is liable personally-unlimited liability. The assets of the business owner can be taken to pay off business debts since the two are not distinct (Dlabay, 2011). This is the major limitation of a sole proprietorship. ii. Income Taxes: Since the business owner and the business are indistinguishable, the proprietor is taxed at personal tax rate. It is significant to note that some expenses can be deducted before arriving at taxable income (Dlabay, 2011). iii. Longevity: In case of incapacity or death of the owner, the venture dies. The assets of the business are passed to personal representatives or trustees, who administer the estate and settle any obligations of the business. This is a disadvantage of sole proprietorship in that there is no continuity (Dlabay, 2011). iv. Control: A sole proprietor runs and makes decisions autonomously. This is an advantage in that making decisions is easy as no consultations are required (Dlabay, 2011).
v. Profit Retention: a sole proprietor owns the business alone and thus retains all profits alone. On the flipside he absorbs the losses alone. vi. Location. This form of business does not require state filings. Thus, the sole proprietor can relocate the business at will...
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...ess as stipulated in the state law. iv. Control: LLC has unlimited members. However, admission of new members must be obtained from the other members. In addition, unlike an S-corporation, LLC allow even foreign members.
v. Profit Retention: Profit is normally shared according to predetermined terms that may be stipulated in LLC operating agreement (Dlabay, 2011). vi. Location: Similar to other corporations, LLC can be registered in any state as a business including the state where it is physically located. If the LLC wants to be registered in another state it must meet the qualifications of a foreign entity. Also, necessary files must be filed and local and state taxes must be paid (Dlabay, 2011).
Dlabay, L. R., Burrow, J., Kleindl, B., & South-Western Cengage Learning. (2011).Principles of business. Mason, OH: South-Western Cengage Learning.