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Sole Proprietorship
One person operating a business as an individual is a sole
proprietorship. The sole proprietorship is the most common form of
business organization. Profits are taxed as income to the owner
personally. This rate is usually lower than the corporate tax rate
would be. The owner has complete control of the business but faces
unlimited liability for its debts. Since this is a fairly simple
type of legal structure, there is very little government regulation and
reporting. A sole proprietorship applies for a business permit at
the county clerk's office in which the business is located.
General Partnership
A partnership exists when two or more persons join
together in the operation and management of a business venture. It is easy
to establish and relatively little regulation. A formal partnership
agreement is recommended in order to address potential conflicts before
they arise. Under a general partnership, each partner is liable for all
the debts of the business. All profits are taxed as income to the
partners based on their percentage of ownership. A general
partnership registers a business name at the county in which the business
is located.
Limited Partnership
Like a general partnership, a limited partnership is established by an
agreement between two or more individuals. However, in a limited
partnership there are two types of partner. A general partner has
greater control in some aspects of the partnership; only a general partner
can decide to dissolve the partnership. General partnerships have no
limitations on the dividends they can receive form profit and so incur
unlimited liability. Limited partners can only receive a share of
profits based on the prorated amount on the their investment, and the
liability is similarly limited in proportion to their investment.
"C" Corporation
A "C" corporation is a legal entity made up of persons who have
received a charter legally recognizing the corporation as separate entity
having its own rights, privileges and liabilities, apart form those of the
individuals forming the corporation. It is the most complex form of
business organization and is comprised of three groups of people:
shareholders, directors and officers. The corporation can own
assets, borrow money and perform business functions without directly
involving the owners of the corporation. The Corporation , therefore
is subject to more government regulation than proprietorships or
partnerships. Corporate earnings are subject to "double
taxation" when the corporation is taxed and when passed through as
stockholder dividends. However, corporation s have the advantage of
limited liability, but not total protection from lawsuits.
Subchapter "S" Corporation
A special section of the Internal Revenue Code permits a corporation to be
taxed as a partnership or sole proprietorship, with the profits taxed at
the individual rate rather than the corporate rate to qualify as a
Subchapter "S" corporation, a business must meet certain
requirements. For more information, contact the IRS and request
Publication 589.
"LLCs" and "LLPs"
The Limited Liability Company (LLC) is rapidly becoming a very popular
business from. An LLC combines selected corporate and partnership
characteristics while still maintaining status as a legal entity distinct
from its owners. As a separate entity, it can acquire assets, incur
liabilities and conduct business. As the name implies, however, it
provides limited liability for the owners. LLC owners risk only the
investment. Personal assets are not at risk.
The Limited Liability Partnership (LLP) is
similar to the LLC with the exception that it is aimed a professional
organizations
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