A Sole Proprietorship is one of the simplest forms of business organizations one can ever have. It is a business formed, managed and controlled by one person who is the owner. The business and the owner are the same thing. When you form this type of business, you are your own consultant, you are the decision maker and all the losses and profits come to you. They include canteens, restaurants, simple shops and boutiques. For this meaning to stand, the business should not have branches in other areas. Pros of Sole ProprietorshipThe owner enjoys all the profits of the business: since it is owned by a single person, he enjoys all the profits that the business accrues. General PartnershipsA partnership is a type of business entity owned and operated by two or more individuals. The partners contribute money in order to raise the required capital so as to start the business. All of them are responsible for how the business operates and take part in decision-making. At times, the partners might decide to allocate each of them a different role so as to enhance the efficiency and performance of the entity. If you would like to start a general partnership, have a look at the pros and cons. Pros• Easy to Start: Forming a general partnership usually takes a short time since it does not involve long legal procedures. Cons• Unlimited liability: General partnerships means that all the partners have unlimited liability. In case of business debts that the business is unable to pay, the personal assets of the partners are at risk of getting sold in order to clear off the debt. Limited Liability Partnership (LLP)A limited type of partnership is whereby all the individuals have limited liability unlike in general partnerships where all partners have unlimited liability. A partnership operates as a limited type only after the partners file an application of registration with the secretary of state. These types of partnerships used to be limited to professional services such as lawyers, accountants or doctors. However, nowadays even common businesses may apply for registration for as long as the partnership has partners that run and operate the business and partners who act as investors. Those running the business have unlimited liability while the investors have limited liability. Pros of LLP• A partner is not liable for any wrongful acts of other partners. Each partner carries their own burden and face consequences of wrongdoings individually. CorporationThis is a business entity owned by a list of shareholders. The shareholders have the mandate to elect a board of directors whose work is to oversee the day to day running of the corporation. When it comes to decision making, it is the responsibility of the directors to make sure that any decision made benefits the corporation and is in support of the corporation’s objectives. Also, the directors have the power to hire and fire employees. The employees of the corporation have the obligation to make sure that the targets of the business are met within certain duration of time. A corporation operates as a separate legal entity from the owners. This means that the owners have limited liability. As a separate legal entity, it means it can buy real estate, sue and even get sued by creditors. An established corp. can raise capital via sale of stock in the stock market. Its ownership can also be transferred from one party to another. It also has perpetual existence meaning that it can continue operating even if the ownership changes. When you want to start a corporation, most probably you will be the major shareholder with authority to appoint directors. The directors will then go ahead to hire employees that will be responsible for the running of the company. A corporation operates under what is termed as corporation by-laws. This is a set of document that provides guidelines on how the corporation should operate. These by-laws can be modified as the company grows. Every year, the corporation should hold an annual meeting to discuss how the entity has performed. Pros of Corporations• One of the most attractive things about a corporation is that the owners have limited liability. This means that in case of debts, the assets of the owners are very safe and remains untouched by the creditors. S Corporation InformationThe difference between an S corp and a c corp is based on the taxation process. When it comes to an s corp, there is only one level of taxation. The income generated by the corporation is distributed among the shareholders for taxation purposes. However, with corps, there is double taxation. The corporate pays corporate tax on its own as a corporate while the dividends generated by the company and passed down to shareholders are also taxed in terms of personal income tax. Pros of an S CorporationBefore you take a step and register your business as an s corporation, you should beware of both the merits and demerits it comes with. The merits include: Cons of an S Corporation• Cash flow vs. tax liability: Whether the shareholders get their share of dividends or not, they are expected to pay their pro rata share of taxes on the company’s earnings. This means that a corporation needs to have proper management of cash flow to avoid any inconveniences in this area. Limited Liability Company (LLC)This is a hybrid of both a corporation and a partnership. A limited liability company operates as a separate legal entity and hence has exclusive rights to buy and own assets, sue or be sued. It has a pass through taxation feature just like a corporation. This means that the members (shareholders) only suffer from a single taxation just like in a partnership. Unlike a corporation, it has no stock and does involve fewer formalities during the formation process. The owners of an LLC are called members and not shareholders like in a corporation. This has made many people refer to it as a corporation with fewer complications. This type of company operates under a set guideline of rules referred to as ‘operating agreement’. These set of rules can be modified depending on how the business performs over certain time duration. Operating a limited liability company is less complex since it only requires the members to meet once or twice a year to make or implement certain decisions. Pros of LLC• Single Taxation. An LLC does not pay taxes at the company level. The taxes charged are ones that are passed through to the members who later pay personal income tax. Factors to consider before choosing a business structureFor new businesses that could fall into two or more of these categories, it’s not always easy to decide which structure to choose. You need to consider your start-up’s financial needs, risk and ability to grow. It can be difficult to switch your legal structure after you’ve registered your business, so give it careful analysis in the early stages of forming your business. • Complexity: When it comes to start-up and operational complexity, nothing is more simple than a sole proprietorship. You simply register your name, start doing business, report the profits, and pay taxes on it as personal income. However, it can be difficult to procure outside funding. Partnerships, on the other hand, require a signed agreement to define the roles and percentages of profits. Corporations and LLCs have various reporting requirements with state governments and the federal government. Business Lawyer For Business Structures In UtahWhen you need legal help with business structure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
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