Running head: BUSINESS ENTITY COMPARISON
1
Business Entity Comparison
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Running head: BUSINESS ENTITY COMPARISON
1
Business Entity Comparison
This study source was downloaded by 100000831988016 from CourseHero.com on 04-29-2022 13:33:32 GMT -05:00
https://www.coursehero.com/file/30414452/BUS-607-Week-1-Assignment-Business-Entity-Comparisondocx/
BUSINESS ENTITY COMPARISON 2
Business Entity Comparison
One of the most critical steps of starting a business is determining the most efficient
business structure the company will operate under. Establishing how a business is structured will
determine the “operating efficiency, transferability, control, the way the company report income,
the taxes they pay and their personal liability.” (Misenti, 2016, par. 1). The business entities
covered in this week’s lecture are Sole Proprietorships, Partnerships, Corporations, and Limited
Liability Corporations. These business entities vary across the business market due to the
distinct characteristics they hold; different formation and termination processes, owner liability,
tax implications, and advantages and disadvantages.
Sole Proprietorship
Companies that operate as a sole proprietorship are owned and run by one individual, and
the business is inseparable from its owner. Forming a sole proprietorship is relatively easy and
inexpensive. Although owners are not required to register their company, they must have a
company name and obtain a business license before starting their business operations. Besides,
the owner must acquire any permits, zoning clearance and an Employer Identification Number
(EIN). Sole proprietorships are one of the simplest, least expensive and most common types of
business to form. Another significant advantage of this business entity is that the owner is
entitled to all the profits since they assume all the risk involved in operating this type of business.
Also, the owner is entirely responsible for creating the company’s policies and making important
decisions. The main disadvantage of a sole proprietorship is associated with owner liability.
Being the sole owner of the business; the owner is legally responsible for all liabilities incurred
through debts and lawsuits. As a result, the owner is at risks for losing both personal and
business assets. The owner is also responsible for obtaining all the capital required to operate the
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BUSINESS ENTITY COMPARISON 3
company, which can be difficult. There is also a lack of continuity when operating a sole
proprietorship because if the owner dies, the company automatically dissolves. Concerning
taxation, the owner has to incorporate the business taxes on their personal taxes and any taxes
due becomes the owner’s responsibility to pay. Depending on the nature of the sole
proprietorship business, terminating the business may involve a multipart process. Usually, the
termination process entails informing employees, vendors, and customers in writing that the
business is closing. The employer will proceed with paying final salaries, clearing all debts, and
filing of final tax documents for both company and employees. The owner should also cancel
business licenses associated with the business and deactivate their assigned EIN.
Partnerships
Under this business entity, two or more partners manage the business with the intentions
to share profits. Some of the key aspects of forming a partnership are generating a name,
executing a partnership contract, acquire the appropriate business licenses and certifications, and
an Employer Identification Number (EIN). The owner liability of the partners in a partnership
primarily depends on the law of the state in which the company exists, and in most states, the
liability is actually unlimited. Furthermore, partners are legally responsible for the liabilities
obtained by the company. Concerning taxation, partners do not pay taxes on profits, and as “the
profits are earned, they flow through the partnership directly to the partners” (Windrow, 2008,
pg. 67). Additional advantages of a partnership includes easy formation, offers flexibility for
owners, and is a simple structure to op
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