Business Entities
There are four different types of business entities that you can choose for your company. Some of the factors to take into consideration are liability, taxation and ownership structure. The different major business structures will each have their advantages and disadvantages, depending on the needs of your business. Understanding the differences between the different business structures is essential to aligning the structure with your business needs.
The most basic form of business is the sole proprietorship. The sole proprietor is the owner and operator of the business. There are minimal legal requirements to start a sole proprietorship – just the basic licenses to operate a business. For legal and taxation purposes, there is no distinction between the proprietor and the business. The proprietor has full legal liability, and pays taxes as an individual on income earned, at personal tax rates. Further, the business assets are equal to the personal assets – legal action taken against the individual can be paid out of business assets, as there is no legal distinction between personal and business assets. From a structure point of view, the sole proprietorship’s simple structure allows for complete freedom
The second business entity is partnership. A partnership is when two or more individuals form an agreement to run a business together. Partnership is a fairly simple and easy to create with a partnership agreement. The partnership agreement sets out the ownership structure of the partnership, so as long as the parties agree the business can be started. However it has its own set of liability issues when it comes to running a company with multiple owners. The partners negotiate among themselves the division of capital and labor.
Liability is share among the partners, according to their ownership, and personal assets can be at risk in a partnership. Further, taxation in a partnership is flow through, meaning that each partner pays taxes on their partnership income, at the personal rate.
Another business entity is the corporation....
Business Structures Overview -- There are a number of different business structures that are available to the new business owner, or someone purchasing a business. Each different structure has its own set of rules, with each having different tax and legal implications. The choice of which to use is thus based on the type of business, its overall legal liability (e.g. A rafting company vs. A resume service), the number
Under this system, "each joint venture partner would separately account for and pay tax on its income and claim the proportionate share of joint venture expenses" (Ernst & Young, no date). Liability is also limited in the joint venture under Australian law. It is worth noting that in this case one part of the joint venture "cannot make the other joint venturer liable for debts that they incur in the
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