Business Ownership: Sole Proprietorship & Partnership

• There are two primary factors affecting the form of business ownership decisions: taxes and legal liabilities.

Sole Proprietorship

• This is a legal form of organization where the owner maintains sole and complete control over the business.
• The owner is personally liable for all business debts.
• There is only one ownership requirement for a sole proprietorship.
• The income and losses "pass through" to the owner and are taxed at the personal rate.
• The liability is unlimited personal liability.
• Advantages include low start-up costs, the owner having direct control, all profits going to the owner, easy exit from the business, and freedom from most regulations.
• Drawbacks include total responsibility and potential difficulty in raising financing.
• Personal finances are at risk, there is unlimited personal liability, and business tax deductions may be missed.

General Partnership

• The legal form of organization involves two or more business owners who share in the management and risk of the business.
• The ownership requirement involves two or more owners.
• The income and losses "pass through" to partners and are taxed at a personal rate, there is flexibility in profit-loss allocations to partners.
• Unlimited personal liability applies.
• Advantages include ease of formation, some tax benefits, easier access to financing, and pooled talent and resources.
• Disadvantages include the potential for conflict, continuity issues for transfer of ownership, unlimited personal liability, and divided authority in decisions.

Limited Liability Partnership

• The legal organization involves general partner(s) and limited liability partner(s).
• Partners can limit their own liability for business debts according to their portion of ownership or investment.
• The ownership requirement is two or more owners.
• The income and losses "pass through" to partners and are taxed at a personal rate, with flexibility in profit-loss allocations to partners.
• Liability is limited, but one partner must retain unlimited liability.
• A good way to acquire capital from limited partners is through a limited liability partnership.
• There are drawbacks such as limited partners being unable to participate in management without losing liability protection, as well as high formation costs and complexities.

C Corporation

• A legal business entity that is separate from its owners and managers.
• There is an unlimited number of shareholders; no limits on types of stock or voting arrangements.
• Dividend income is taxed at corporate and personal shareholder levels; losses and deductions are corporate.
• Liability is limited.
• Advantages include limited liability, transferable ownership, continuous existence, and easier access to resources.
• Disadvantages include double taxation, extensive record keeping, and charter restrictions.
• It can be expensive to set up and closely regulated.

Limited Liability Company (LLC)

• It is a hybrid between a partnership and a corporation.
• There can be an unlimited number of members, with flexible membership arrangements for voting rights and income.
• The income and losses "pass through" to partners and are taxed at a personal rate, with flexibility in profit-loss allocations to partners.
• Liability is limited.
• It has greater flexibility and is taxed as a partnership, not as a corporation.
• Drawbacks include the need for legal and financial advice in forming an operating agreement, and the cost of switching from one form to this one can be high.

One Person Corporation

• It is a company with just one stockholder.
• The single stockholder is also the sole incorporator, director, and president.
• The OPC needs only a single stockholder.
• Incomes received by the OPC are subject to a corporate income tax rate of 30%.
• Liability is limited.
• There are more opportunities and less liabilities with the format.
• The structure is limited to natural persons, trusts, or estates. There is also more paperwork and complexities.

An overview of factors influencing business ownership decisions, focusing on sole proprietorships and general partnerships. Discusses owner liability, taxation, advantages, and disadvantages of each structure. Key considerations include start-up costs, control, and personal financial risk.