Business Entities

I. Sole Proprietor:

Advantages:

No creation cost or time (nothing is Created)

Quick start up

Permits might be needed in certain business industry, as in food or liquor business.

Autonomy

Own the business out right.

Set own hours of operations

Can choose pace of growth

Can quickly choose to have new areas of business

Can operate under a DBA/ assumed name other than owners personal name

a. Cannot have corp or Inc. in name

Disadvantages:

1 owner/can not bring in partners

If owner were to die, business cannot transfer.

Raising capital for further business would be a problem

a. Can take out a bank loan

b. A loan from an individual,

c. Or using personal credit cards to fund the newly formed business

d. Venture capitalists for private placement of non-public security

e. Venture capitalists will then exit in IPO (initial public offering)

Taxes:

A. Income is treated as an ordinary personal income for filing tax purposes

b. In the U.S. Personal income tax usually has the highest taxation rate.

1. There could be a large tax burden depending on personal tax rate

Unlimited Liability

a. Personal and company assets could be exposed to creditors, obligations along with personal injury lawsuits.

II. General Partnership

Advantage:

a. Same as sole proprietors

b. Management responsibilities are divided up

c. Quick formation

Disadvantages:

a. Same tax as sole proprietors

b. Income is passed through each partner

c. May file Information return for tax agency

d. Unlimited liability between all partners

1. Jointly and severally liable

III. Limited Partnerships

a. Has general partners as well as limited partners

Most limited partners have limited exposure to liabilities often times just the lost of their initial investments. They are prohibited in daily management operations of a given business.

IV. Corporations – separate legal entity

Advantages:

a. Limited Liability

b. Can exist after...