Business Organization

Sole Proprietorship

• The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

Advantages of S.P.

• you’re the boss• you keep all the profits• start-up costs are low• establishing and operating your business is

simple • you can easily wind up your business. Easy In,

Easy …….

Disadvantages of SP

• you have unlimited liability for debts as there’s no legal distinction between private and business assets

• your capacity to raise capital is limited• all the responsibility for making day-to-day

business decisions is yours• retaining high-calibre employees can be difficult• it can be hard to take holidays

Partnership

• A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

Advantages of Partnership

• two heads (or more) are better than one• your business is easy to establish and start-up

costs are low• more capital is available for the business• you’ll have greater borrowing capacity• high-calibre employees can be made partners• there is opportunity for income splitting, an

advantage of particular importance due to resultant tax savings (WARNING)

Disadvantages of Partnership

• the liability of the partners for the debts of the business is unlimited

• each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts

• there is a risk of disagreements and friction among partners and management

• each partner is an agent of the partnership and is liable for actions by other partners

• if partners join or leave, you will probably have to value all the partnership assets and this can be costly.

Limited Liability Corporation

• A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

• The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs.

• Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are "passed through" the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.

Corporations

• Corporations are Independent Legal Entities• They sell shares of stock to the public• They are run by a board, elected by the share

holders. The board appoints Officers

Advantages of a Corporation

• Limited Liability• Access to capital which can be used for growth• Corporations have sponsored most of the

research and technological advancements that characterize our modern economy. In addition, they create jobs.

• Corporations are also a popular form of investment and many pay dividends

Disadvantages of a Corporation

• Difficult to start with high costs and approval from regulatory government agencies like the SEC

• Many legal documents and government regulation

• Loss of control• Taxes are complex! In general moving from sole

proprietor to corporation – Taxes become more complex. Also, there is the issue of double tax.