Lit Task 1 a&B

Topics: Corporation, Types of business entity, Types of companies Pages: 7 (2058 words) Published: August 22, 2013
LIT1 – Task 1 (Part A)

Sole Proprietorship:
* Single Ownership - The single individual always owns sole proprietorship form of the business. The individual owns all assets and properties of the business and bears the risk of losing or gaining from the business. * No Sharing of Profit – The business is owned by an individual, therefore, all of the gains are directly available for the owner to access immediately. There is no friction between owners * One Man’s Control - The controlling power in a sole proprietorship always will be the owner. However, the owner is free to consult to whomever he/she likes. * Unlimited Liability - The liability of the sole proprietor is unlimited. This implies that, in case of loss the business assets along with the personal properties of the proprietor shall be used to pay the business liabilities * Direct Motivation – Since the profits earned goes directly to the owner there is a greater motive to perform. * Ease to form and dissolve – Since the business is not a corporation it is fairly easy to startup and dissolve. * Taxation – The owners conduct a pass through taxation in which the income is reported on the owner’s personal tax return. * Longevity – A sole proprietorship exists as long as the owner is living or until the owner decides to close the business. * Location – The owner has the rights to choose the location of operation very easily because it’s up to their own discretion.

General Partnership:
* Formation – This type of business is formed when two or more individuals enter into business together. * Taxation - No local or state filings (other than appropriate tax returns) are required to create this type of partnership. The setup is like a sole proprietorship, a partnership has only one level of taxation. * Risk - The distinguishing feature of a partnership is the unlimited liability of the partners. Each partner is personally liable for all of the debts of the partnership. * Dissolving Business – This type of business is easy to close in case the business fails. However, the distribution of assets is complicated. * Profit Retention - The company profits are split among owners * Location – Both partners would need to agree upon the business location as they have equal voting rights according to the UPA. * Longevity - The company could continue without one partner but it should be stated in the partnership agreement on how the business plans to handle such events.

Limited Partnership:
* Statute - A limited partnership may be created only in accordance with a statute. If the statute is not followed, unlimited liability may be imposed on all the partners. * Partnership – A limited partnership has two types of partners: general partners and limited partners. It must have one or more of each type. * General Partner - have actual authority as agents of the firm to bind all the other partners in contracts with third parties that are in the ordinary course of the partnership's business * Taxation - A limited partnership pays no federal income taxes. Generally it’s a pass through taxation. There are limitations of claiming losses beyond $25,000 per year. * Fiduciary Responsibility - General partners, as agents, are fiduciaries of the business. Limited partners are not fiduciaries. * Liability – Under the Limited Partnership business setup, the partners have limited liability based on his or her investment in the company * Location – It would be complicated to move this business type to another state due to the state filing requirements and the business could consist of multiple partners * Convenience/Burden – Two issues commonly faced by limited partnership are defective filing and a limited partner’s taking control * Profit/Retention - Partnerships offer flexibility when it comes to splitting the profit and losses. * Control – General Partners have control on the management of the business *...
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