BUS 311: Business Law I
July 11, 2016
When the decision is made to start a business the next step is to decide on the type of business entity is to become. This decision is an extremely important one and can have lasting repercussions if all of the details of each business type are not known. Deciding on what type of business entity to have one will have to look at the different types of business structures and then decide accordingly. There are vast differences between the sole proprietorship, partnership, limited liability company (LLC), and corporation and understanding each is vital.
A sole ...view middle of the document...
If the business entity were to go under or fall victim to a lawsuit the sole proprietor would not be protected from the losses. They would be made responsible for all the repayment of debt or losses from the lawsuit; they would have to use their personal property or funds to pay all the necessary payments in the name of the business. Having a sole proprietorship is simple and having complete control of all the day to day business activities may sound inviting, however the burden of sole personal liability could make anyone second guess having this type of business entity.
The partnership structure can range from simple to a complex business structure. To form a partnership the business must be registered and again like the sole proprietorship licenses must be obtained from the state and/or city in which the business will set up shop. There are usually three different types of partnerships, the general, limited, and joint venture partnerships, each having their own set of variations. What these three types of partnerships have in common is that they must have at least two or more people that share some form of ownership and must be for profit (Rogers, 2012 & U.S. Small Business Administration, 2015).
General partnerships are the simplest of partnership entities to form and all partners share in the management of the business operations and the share of profits, but also are personally liable for the debts (Spadaccini, 2005). Limited partnerships are more complex in nature and the limited partner/partners contribute money and share in the profits, however they are no part of the management and incur no liability for debts of the business (Spadaccini, 2005). Last but not least, the joint venture is like a general partnership, but are usually only for a specific amount of time.
A partnership has disadvantages when it comes to its liability. Liability can be limitless like in the sole proprietorship unless the partner is limited. The partners that are remaining are bound by the other partners and all of their actions. This is to include but not limited to debts acquired, promises made, and actions taken against other partners in lawsuits. Also all profits must be shared equally regardless of the capital put up unless other provisions have been made early in the partnership in writing (U.S. Small Business Administration, 2015).
A partnership must file an “annual information return” to be able to report any income, deductions, and profits and losses of the business (U.S. Small Business Administration, 2015). Even though this is done the business does not pay an income tax, but the partners must do this when they file their taxes. They do this by reporting any gains or losses that they have incurred over the course of the year.
A limited liability company or LLC, is a business entity that range from a small sole proprietorship to a large corporation. This business structure is one that limits the amount of liability and...