Sole Proprietorship

Forms of Business Organizations in the USA

Legal Forms of Business Organizations

A number of business forms are available to carry on business in the United States. The following briefly outlines the basic choices among the forms of business organizations available for use in the United States in general. Although each state in the U.S. has adopted its own laws and regulations governing the formation and operation of the various forms of business entities, the fundamental laws do not vary significantly from state to state. The effect of choosing one form over another, however, may be significant. Tax and liability considerations are usually the most important factors in determining the most appropriate form of business entity, as tax and liability consequences vary according to the type of entity. No matter what form is chosen, establishing a business in the U.S. is comparatively quick and inexpensive. The decision whether to utilize a particular form should be made in consultation with an attorney. The following business forms are the most commonly used:

Sole Proprietorship

The sole proprietorship is the most basic business form. In a sole proprietorship, the business and its owner are the same legal person, i.e. one person owns all the assets of the business and is solely liable for all the debts of the business. In other words, there is no limited liability insulating the owner from his business. The regulation of sole proprietorships is minimal. In certain circumstances additional licenses may be required, for example, a restaurant selling alcohol to its consumers will be required to obtain a liquor license.

Advantages: Simplicity is the greatest advantage of a sole proprietorship. They require no legal action and are consequently easy to start. There are generally no formal requirements for operating in this form, other than registering the true name of the business owner if the business is conducted under a trade name. Management of the business is left solely to the owner. Especially very small businesses with no initial capital benefit from the initial savings.

Disadvantages: The owner is personally liable for the debts and obligations of the business to the full extent of his personal property and assets. The capital of the business is limited to the cash and credit of the owner.

Tax Considerations: The proprietorship itself is not a taxable entity. The sole proprietor reports items of income and expense of the business on his personal tax return. The sole proprietor’s business and personal income tax returns can be combined and business losses are easily deducted from personal income.

Partnerships

A partnership, as the name implies, is a business entity in which two or more co-owners join efforts. In many aspects, the general partnership is a counterpart to the sole proprietorship.

Дата добавления: 2015-11-16