Form of business

When starting up a business, or to accommodate continued growth, a business person decide if it is better to use a corporation, or use some other legal structure such as a partnership, limited partnership, or entirely different structure.. There are generally 3 common business structures that are used: a sole proprietorship, a partnership, or a corporation. This article will address some frequently asked questions about using a corporation to carry on business. There are many advantages to corporations and it is probably the most commonly used business structure. There are some disadvantages and costs that should be considered. When youre considering the legal structure of your business. You basically have three forms of business ownership to choose from: A sole proprietorship A partnership Corporation

Sole proprietorship : A person who does business for himself is engaged in the operation of a sole proprietorship. Anyone who does business without formally creating a business organization is a sole proprietor. Many small businesses operate as sole proprietorships. Professionals, consultants, and other service businesses that require minimum amounts of capital often operate this way.

A business structure in which an individual and his/her company are considered a single entity for tax and liability purposes. A sole proprietorship is a company which is not registered with the state as a limited liability company or corporation. The owner does not pay income tax separately for the company, but he/she reports business income or losses on his/her individual income tax return. The owner is inseparable from the sole proprietorship, so he/she is liable for any business debts. also called proprietorship.

Advantage of a sole proprietorship: It has some advantage such as:

Easy of starting:- Sole proprietorship is the easiest way to start a business. Anybody want to start a sole proprietorship business can do it because they dont need any legal document. Control:- as the owner, who made final decisions, she/he worked as many hours as she/he wanted, such freedom indicates the total control over daily operation and decision. Sole participation in profit and loss:- In sole proprietorship organization, owner is boss, he has no partner, that is why owner receives all profits or all sustain loss. Cost:- In this type of business, organization costs are law. It has small wages cost, payment and non to any inventory house or big and gorgeous shop.

Used of owner ability:- Owner had everything to lose or gain from her effort. The chance of personal losses motivated her to devote time, energy and expertise to the delis operation and success depended largely on the efficient use of her abilities. Owner had used to her own managerial abilities. Owner had used to her own managerial abilities or pay someone else who had managerial expertise. Tax breaks:- a major advantage of the sole proprietorship is that business pay no income tax. Secrecy:- Owner make on collect information or income expenses, hours worked and other items required by income tax regulation. This information typically is not publish to the public. Financial data does not have to be shared with the public Ease of dissolving:- It owner were decided to dissolve business for any reason. There would be no legal competiton.

Disadvantage of sole proprietorship: Sole proprietorship have disadvantage too, which are given below

Unlimited liability: obligation of investors to use personal assets, when necessary to pay of debts to business. Difficulty in raising capital:- Owner investment was limited to personal wealth or resource. Business requires large amount of capital, which are not formed as sole proprietorship. Limitation of managerial ability:- one person does not know everything such as planning, organization, controlling,

marketing, financing and accounting and other factors. So managerial ability is limited.

Lack of stability:- This type of business stability are less. In any cause like as death, illness and in any accident to the owner, sole proprietorship can be closed. Demands on time:- Sole proprietorship business cant fulfill demands on time. Business change owner can adopt on time and also owner cant be met on time deliver Difficulty in hiring and high achievement employees:- If owner want to hire and keep achievement employees (owner hire, specialist on advisor) to improve his business, but he cant do that, because he has lack of financial support.

Partnership business: 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. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

Types of Partnership business:- There are three major types of partnership business. *General partnership *limited partnership *joint venture General partnership:- A partnership in which at least one partner has unlimited liability.

General partner has liability of loss or profit, authority to act and make decision as an owner. Limited partnership: A limited partnership includes one or more general partners and one or more limited partners. The general partners arrange and run the business. The general partners arrange and run the business, while the limited partners inventors only, who are liable for loss or profit up to the amount of their investment. Joint venture:- Sometime partnership business can be reformed in joint venture. Joint venture means two companies together in order to accomplish a specific goal. Elements of partnership contract:- sound business practice dictates that partnership agreement be written and signed is not a legal requirement. Such a contractual can prevent miscounts standings at a later date. It is provide prove of agreement. A written partnership agreement includes

some element:*Name of the business partnership. *Type of business *Location of business *the amount of each ones investment *procedures for distributing profit or losses *Amount that partners will withdraw for services *Procedures for withdrawing of funds *Duties of each partner *Procedures for dissolving partnership

Advantage of partnership business:- It has some advantage, which are given below:

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More capital: In a partnership the amount of capital may increase significantly. A person with a good ideas, but little capital can look for a partner with the capital and credit standing to develop and market the idea. Combined managerial skills: In partnership people with different talent and skills may join together. One may be good at marketing; one may be expert at accounting. Combining these skills could provide a greater chance of success. Easy of starting: it involves a practice contractual arrangement a partnership is fairly easy to start. It is nearly as free of government regulation. Clear legal status: Legal precedents for partnership have been established through count cases. The question of right, responsibilities, liabilities and partner duties have been included in the legal status of the partnership is clearly understood.

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Tax advantage: the partnership has some potential tax advantage over the corporation. In the partnership business does not pay income tax. Disadvantage of partnership business: it has some disadvantage, which are given belowUnlimited liabilities: Each general partner is liable for a partnership debts. Potential disagreement: Decision made by several people are often better than those made by one. Having two or more people deciding on some aspect of the business can be dangerous. Power and authority can be divisions making becomes more fine consuming . Investment with draw difficulty : A person who invests money in a partnership may have a hard time with drawing investment . Limited capital availability : Partners have a limited capacity and cannot

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complete in business requiring large outlays the amount of capital a partnership can raise depends on the personal wealth of the partner and their credit rating . It depends on how much they are willing to investment in the partnership.
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Instability : If one partner dies or withdraw from the business , the partnership is dissolved .

Corporation: A corporation is a legal business structure that establishes the business as being a separate entity from the owner(s). This means that the assets, income, debts, and liabilities of the business belong to corporation, not to the owner. A business that is legal entity, separate from it owners. Member size is big. In the eyes of law, the corporation is an artificial being, invisible and intangible. It has the legal rights of individual, It can own property. Purchase goods and services. Every corporation must have at least one shareholder, a director and officer. The

shareholders are the owners of the corporation. The directors are the persons charged with the management and administration of the business and affairs of the corporation. The officers of the corporation would normally be the president, the secretary and such other officers as the directors may decide upon. If there is only one shareholder, then that person is generally the sole director and only officer of the corporation. It is no longer necessary that there be a president and a secretary. A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through

dividends and/or the appreciation of stock, but are not held personally liable for the company's debts.

Advantage of corporation business: The power and presence of corporation in American business suggest that this form has certain advantage. 1) Limited liabilities: A person investing funds in a corporation receives share of stock and becomes an owner. In a corporation, the liability for the share holders equals the amount of fund invested. In the business is forced to liquidate each owner loses only the amount of money or she has invested.

2) Skilled management team: The board of directors has the duty of hiring professional managers and the owners delegate their power of operating the business to these managers. Professional managers are trained and experienced career executives. 3) Transfer of ownership: Shareholders have the right to sell their shares of a corporation stock to whomever they please. These shares of ownership can be sold whenever the shareholders desire and at the price, the buyer is willing to pay. Shareholders can freely buy and sell share of stock. 4) Great capital base: Corporations can attract capital from a large number of investors by selling share of stock. 5) Stability: A corporation can usually be chartered to operate identinitely. Share holders deaths retirement or sale of stock need not dissolve the business.

6) Legal entity status: A corporation can purchase property. Make contracts and can be used in its corporate name. These characteristics distinguish it most clearly forms of business organization.

Disadvantage of a corporation: It has some disadvantage such as-

1) Difficulty and expenses of starting: starting a corporation involves applying for a charter from a state. Each state has its own set of laws; these must be considered for deciding to incorporate. An attorney should be hired to complete legal forms. Attorney fees and state charter fees must be paid. This cost very expensive.

2) Lack of control: The individuals shareholders has little control over the operation of the corporation accept to vote for a state of individuals for the BOD. 3) Double taxation: the corporation has to pay taxes on its profits. The shareholders must has to pay income tax in the dividends they receives through ownership. This Practice of taxing corporate income and dividends is referred to as double taxation. 4) Government involvement: State and federal govt. have the right by law to exercise certain controls or business. A corporation can not conduct its business in a state in which is not registered. 5) Lack of secrecy: A corporation must provide each share holders with annual report in a closed corporation. The few reports circulated usually wont get into the hands of his owner. But where a large numbers of reports are issued the reports become public knowledge.

6) Lack of personal interest: In most corporation management and ownership are separate. This separation can result in a lack of personal interest in the success of corporation. 7) Credit limitation: Banks and other lenders have to consider the limited liability of corporations. If a corporation fails It creditors can look only to assets of the business to satisfy claims.

Reference
Form of business:

Sole proprietorship: http://www.investorwords.com/4626/sole_proprietorship.html#ixzz1xClCT5Mj Advantage and Disadvantage of sole proprietorship: Business for the 21st Century, written by Skinner, Ivancevich

Partnership business:
http://www.irs.gov/businesses/small/article/0,,id=98214,00.html

Types of Partnership business:

Business for the 21st Century, written by Skinner, Ivancevich

Advantage and Disadvantage of Partnership: Business for the 21st Century, written by Skinner, Ivancevich

Corporation: http://www.investopedia.com/terms/c/corporation.asp#ixzz1xD0EOzQy

Advantage and disadvantage of corporation: Business for the 21st Century, written by Skinner, Ivancevich