Breadtalk Group 1 - Business Types of Ownership

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Business Types of Ownership

The pros and cons of different business types of

ownership, including sole proprietorship, partnering,

corporations, and limited liability companies.

One of the first decisions that you will have to make as a business owner is how the company should be

structured. This decision will have long-term implications, so consult with an accountant and attorney to help you

select the form of ownership that is right for you. In making a choice, you will want to take into account the

following:

• Your vision regarding the size and nature of your business.

• The level of control you wish to have.

• The level of structure you are willing to deal with.

• The business' vulnerability to lawsuits.

• Tax implications of the different ownership structures.

• Expected profit (or loss) of the business.

• Whether or not you need to reinvest earnings into the business.

• Your need for access to cash out of the business for yourself.

Sole Proprietorships

The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person,

usually the individual who has day-to-day responsibilities for running the business. Sole proprietors own all the

assets of the business and the profits generated by it. They also assume complete responsibility for any of its

liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.

Advantages of a Sole Proprietorship:

• Easiest and least expensive form of ownership to organize.

• Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they

see fit.

• Sole proprietors receive all income generated by the business to keep or reinvest.

• Profits from the business flow directly to the owner's personal tax return.

• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship:

• Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their

business and personal assets are at risk.

• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or

consumer loans.

• May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to

own a part of the business.

• Some employee benefits such as owner's medical insurance premiums are not directly deductible from

business income (only partially deductible as an adjustment to income).

Federal Tax Forms for Sole Proprietorship:

(only a partial list and some may not apply)

• Form 1040: Individual Income Tax Return

• Schedule C: Profit or Loss from Business (or Schedule C-EZ)

• Schedule SE: Self-Employment Tax

• Form 1040-ES: Estimated Tax for Individuals

• Form 4562: Depreciation and Amortization

• Form 8829: Expenses for Business Use of your Home

• Employment Tax Forms

Partnerships

In