Task 1

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.

Characteristics to keep in mind about Sole Proprietorship

1. Liability There is a lack of protection from personal liabilities, meaning that the personal assets of a sole proprietor is at risk in the event of litigation. If the business fails, any creditor can go after the business assets of the business as well as the personal assets of the owner.

2. Income Taxes The business owner is responsible for paying taxes on all profits generated by the business as personal income and does not need to do a separate corporate tax filing. The proprietor can also reduce his or her taxable income by charging off business expenses.

3. Longevity or continuity of the organization Since finding a source of funding is one of the biggest challenges a sole proprietor may face, it hinders the business to have longevity...

... middle of paper ...

...d. The shareholders, however, will be responsible reporting their share of the profits and paying taxes when filing their personal tax returns. By being able to sell stock in an S-corporation, the client can address his concern of retaining control of the company by allowing his family to join the business and serve as officers of the corporation. An in the event the client dies, an S-corporation will not dissolve and can maintain continuity.

Conclusion: An S-corporation is characterized by having the benefits of both a corporation and partnership. Hence, having the tax benefits of a partnership while personal assets are protected, make forming an S-corporation an attractive option. In conclusion, it is in our best estimation that an S-corporation will better meet the needs of the client over other entities, thus making it the most practical choice for the client.