Six Formd of Business Organizations

TASK A

The following are six forms of business organizations. Each form includes a description of the form and its key characteristics, advantages and disadvantages with respect to the following categories: Liability, Income taxes, Longevity, Control, Profit retention, Location (Expansion) and Convenience.

(a1) SOLE PROPRIETORSHIP:

An unincorporated business with a single person as an owner. Generally the sole proprietor acts as chief manager in all aspects of the business, but may employee others to run the business. Due to its single owner nature, agreements and formalities are not necessary. A sole proprietorship is simple to set up and affords the owner a high degree of autonomy, certain tax benefits and full ownership of profits. These benefits are balanced against the fact that the sole proprietor's financial resources are limited to the owners savings and credit. There is no distinction between the owner's business and personal assets and liabilities. 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.

• Longevity: The business dies with the owner. Without careful advanced planning, only essential transactions are permitted post-mortem.

• Control: The sole proprietor retains absolute control over all aspects of the business. The owner may choose to employ people to manage the business, but, ultimately has final sign off and veto co...

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...g the pass-through taxation that is used as sole proprietor or as a partnership if members are added. This avoids double taxation. It also allows the owners personal income tax liability to be offset by the company's likely upcoming expense and losses.

The LLC will allow the owner to offer some level of membership to an investor. An affluent investor may find the possibility of offsetting his/her tax burden from outside income through investing in a profitable business with considerable upcoming expense related to an expansion to be very attractive.

In the operating agreement, the owner will be able to add family as members of the company as well as define the role and power of any members gained through investment. If he dies, his remaining family will remain to be members of the LLC with the power to approve or veto transference of ownership interest.