Lit1 Task 310.1.2-01-06

LIT1 Task 310.1.2-01-06

Forms of Business Organizations

Sole Proprietorship. Sole proprietorships represent the simplest form of business organization. As the name suggests, one person owns this unincorporated business. Convenience is a key characteristic of this form, as this organization has the least amount of regulatory oversight. The owner of the business is personally liable for the actions of the business. An owner declares all income for the business on their personal income tax forms. The government treats the company and the owner as a single unit. Control of the business is also vastly simplified in this form, as the owner gives the sole direction and tone for the business, providing a high degree of autonomy. The owner retains all profits earned by the business. The longevity of the sole proprietorship is arguably the biggest negative aspect to this form of business, as the company dies with the owner. With respect to location, generally expansion to an additional state will require the owner to file income taxes in that state, and may require additional licensure in the new state.

General Partnership. General partnerships are companies where two or more partners both fully participate in control, management and operation of the business venture. General partnerships are reasonably convenient because they can be established by basic written or oral contract outlining terms of the partnership. This agreement generally addresses key provisions of the operation of the business, including names of partners, business name and type, capital investment of each partner, resulting shares in profit and loss of the enterprise, and provisions for resolving disagreements in the partnership.

As with the sole proprietorship, location may affect both the individual partner’s requirements to file in other states, as well as licensure of the firm in those areas. All partners share unlimited Liability for activities in a general partnership. Partners in the...