Differences Between Sole Proprietorship, Partnership & Corporation

By Evan Mckinney, eHow Contributor

There are a number of different types of business organizations an individual or a group can form. However, three of the most common types of business organizations are sole proprietorships, partnerships and corporations. These three types of businesses are similar in some ways, but a number of differences are important to note.

1. Formation
o

A sole proprietorship or a partnership may be formed without filing any formal paperwork. The creators of a corporation, however, must file a document known as the articles of incorporation.

Liability
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The owner(s) of a sole proprietorship or a partnership may be held liable for any business activity and/or obligation. Corporate shareholders, however, usually are liable only for the amount they invested.

Record Keeping
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Corporations are required to keep strict records of meetings and other similar administrative activities, while a sole proprietorship or a partnership typically is not required to do so.

Size
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A sole proprietorship can have only a single owner, but a partnership or a corporation may have any number of owners.

Taxes
o

The owner of a sole proprietorship is required only to report the business' earnings on her tax return, while a corporation or a partnership must file a separate return for the business.

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Average refund 1459 back in 2 wks Do online or Freefone 0800 007 5703 A sole proprietorship is a business
that has a single owner who is responsible for making decisions for the company. A partnership consists of two or more individuals who share the responsibility of running the company. A corporation is one of the most recognizable business structures and has a separate identity from the owners of the company. One or more owners may participate as shareholders of a corporation.

Formation
A partnership business automatically begins when two or more people decide to go into business. Sole proprietorships begin automatically when a single business owner decides to open a business. There are no documents to file to begin a sole proprietorship or a partnership. However, businesses are required to file articles of incorporation, also known as a certificate of formation, to legally form a corporation in any state. Each state charges a fee, which varies from state to state, to file articles of incorporation. In addition, corporations are required to register with each state where the company intends to make business transactions. This requirement is not imposed on sole proprietorships or partnerships.

Liability
Sole proprietors and partners in a partnership business have unlimited liability for all debts and liabilities that occur while operating the business. This means partners and sole proprietors may lose their homes, cars and other personal assets, if the company's assets are insufficient to cover the company's debts. Corporations provide owners of the company with limited liability protection against business losses and obligations. This means owners of a corporation will not lose their home, if the company goes bankrupt. Owners of a corporation are liable for company debts and obligations up to the extent of their investment in the company.

Taxation
Partnerships and sole proprietorships are referred to as pass-through entities. This is because sole proprietors and partners in a partnership report their share of company profits and losses directly on their personal income tax return. Sole proprietorships and partnerships are not required to file business taxes with the Internal Revenue Service. Corporations are subject to double taxation. This occurs when the corporation pays taxes on the company's profits at the business level, and shareholders pay taxes on income received from the corporation on their personal tax return.

Structure
Corporations have a structure consisting of shareholders, directors, officers and employees. Every corporation must select at least one person to serve on its board of directors. The board of directors is responsible for allocating the company's resources and increasing the shareholders' profits. Officers are required to manage the day-to-day activities of the company and implement the decisions made by the company's shareholders and directors. Sole proprietorships and partnerships have a more informal structure that does not require the selection of officers and directors. Sole proprietors have full control over every aspect of their business, whereas partnerships and corporations have to vote on important company issues.

Formalities
Partnerships and sole proprietorships have far less paperwork and fewer ongoing formalities to adhere to in comparison to a corporation. Corporations are required to hold at least one annual meeting, while sole

proprietorships and partnerships do not have to hold company meetings. A corporation must keep strict financial records and keep a ledger detailing how the company reached certain decisions. Unlike a corporation, sole proprietorships and partnerships are not required to file annual reports with the state or create financial statements

Read more: Differences Between Sole Proprietorship, Partnership & Corporation | eHow.com http://www.ehow.com/facts_4814670_differences-proprietorship_-partnership-_amp_corporation.html#ixzz1MS1dhltc Accounting Jobs

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