LIT 1: Task 310.1.2; Sole Proprietorship/ General Partnership/ Limited Partnership/ Corporation/ LLC .Part A and B. Study Guide.
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LIT 1
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Western Governors University
LIT 1: Task 310.1.2; Sole Proprietorship/ General Partnership/ Limited Partnership/ Corporation/ LLC .Part A and B. Study Guide.
Sole Proprietorship
The Sole Proprietorship form of business is the simplest form of business and has a long
history of existence however can be restrictive when it ...
lit 1 task 31012 sole proprietorship general partnership limited partnership corporation llc part a and b study guide
lit 1 task 31012
lit 1 task 31012 sole proprietorship general p
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LIT 1
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Sole Proprietorship
The Sole Proprietorship form of business is the simplest form of business and has a long
history of existence however can be restrictive when it comes to taxation and business growth.
Sole Proprietorship can be a company consisting of just the owner, or a small number of
employees. The ease of setting up a Sole Proprietorship business is one of the reasons it is very
popular, the only requirements would be if the business would be run under a different name that
the owner.
Advantages:
o Ease of setup.
o Owner has full control of company.
o Tax filing is simplified on personal tax return; owner can take advantage of
business deductions for business expenses.
o Owners full credit and assets are available to company.
o Taxes are filed as a Schedule C on the owners standard 1040 form
Disadvantages:
o Owners death ends the company
o Difficult to transfer ownership
o Hard to raise capitol as lenders will look at personal finances
o No liability protection for owner, personal assets would not be protected
Key characteristics:
• Liability – a sole proprietorship has the least amount of protection for both the
business and owner. In the event of an issue at the business, even with insurance
the owner maybe held liable, including their personal assets if needed.
• Income Taxes – Owner and business are taxed as one entity, however owner can
take advantage of business deductions for items or services purchased for the use
of the business
• Longevity or continuity of the organization – upon owners death, business is
dissolved as the owner and business are viewed as one entity. Sale of business
• Control – Owner has full control and responsibility of the business
• Profit retention – Owner can keep all of the profits from the business
• Location – Business can move from location to location at the decision of the Sole
Proprietor as long as the proper licenses are maintained for the type of business
done if applicable.
• Convenience or burden – Owner if fully responsible for the business and must
maintain all compliance with local/state/federal license or permit requirements.
This may add additional workload to the owner, away from running the business.
, General Partnership
The General Partnership is two or more individuals that join to form a company. The
partnership agreements can be either oral or written as Articles of Partnership; these
agreements would dictate each partners role in the company and what their financial
contribution and return would be. General Partnerships still have the issue of liability
projection for the owners; any wrongdoing by one partner can adversely affect the other
partner(s) regardless of knowledge of the action.
Advantages:
o Shared resources of the partners
o Partners share workload and plans for the company.
o Each partner may contribute a specialized skill to company eliminating some of
the burden of a sole proprietorship on any one individual
Disadvantages:
o Partners death ends the share in the company
o No liability protection for partners, any issues created by one partner is shared by
all.
o Tax is a filed on personal income, notice of partnership is filed as Form 1065
Key characteristics:
• Liability – Similar to a sole proprietorship, each partner can be held liable for
issues within the company, including their personal assets. Additionally all
partners are viewed the same, regardless of their actions if an issue is brought to
the business
• Income Taxes – Each partner is taxed as an individual and is considered one
entity with the partnership company.
• Longevity or continuity of the organization – A partnership can end upon the
death of any one partner.
• Control – Depending on the articles of partnership, each partnership has reduced
control of the company and must get approval of the other partners where
necessary
• Profit retention – Profit is split according to the partnership agreement
• Location – The location of the business can be moved, however approval must be
given by the partners.
• Convenience or burden – By adding partners, the burden on an individual can be
reduced as oppose to a sole proprietor business
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