Essay about LIT1 Business Organizations

Submitted By tcgolfnut44
Words: 2268
Pages: 10
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This paper will discuss the six most common forms of business organizations is the United States, explaining their individual characteristics, advantages and disadvantages. Hopefully this will allow you to make an informed decision about the direction that would be most advantageous to grow your current business.
Sole Proprietorship Your current business is a sole proprietorship which is the most common of all the forms of businesses is the United States today. This type of business usually has a single owner, unincorporated with a very small number of employees, usually fewer than 8. The owner most always runs the business’ daily operations, or may hire others to run it for him. The proprietor carries the overall responsibility of making the decisions that determine the success or failure of the company. The advantages of a sole proprietorship are that it is very simple to set up; he (she) is the boss which means total freedom of action. All profits and benefits of business ownership can be taken advantage of, such as tax benefits, not having to share gains with a partner. The owner is taxed on an IRS 1040 form with an attached Schedule C. The owner only has to pays taxes on net gains, that is after all expenses and depreciation of equipment are deducted from profits. Some of the disadvantages are that your resources are limited capitol on hand and the ability to obtain credit and borrow the money needed to stay running if there is a lull in the work load. Also, all of the liability fall upon the shoulders of the owner, the business’ assets, whether good or bad are their personal responsibility. If or when the sole proprietor dies so does the business, which could be a personal hardship for the surviving members of the family because they become personally liable for the business if they choose to continue running it. Many times the heirs do not have the business savvy or charisma of the original owner and do a bad job of keeping the business running. It is very rare that the new owners can maintain a successful business after the original owner passes. Lack of planning by the deceased is usually the main reason the business has little or no chance of continuing with relatives at the helm.

General Partnerships There are 2 types of partnerships in the U.S., commercial (manufactures or sells of goods) and professional (lawyers or medical professionals). When 2 or more people combine their unique skill to make profit, and create a contract, this is considered a partnership. A partnership is voluntary and each person agrees to contribute a certain portion, whether it is money, skill, use of a building or anything else considered being an asset to the company. A general partnership is when the partners are actively involved in the daily activities and management of the business and are each sharing the liability and profits of the company. Some partnerships are written and some are oral, the best type of agreement is always written because then everyone is clear to the amount of ownership and responsibility. Partnerships can only be formed by living people that consent to the agreement. Individual ownership cannot be transferred or sold, and upon the death of one of the partners only the interest passes to the personal representative, not any ownership. Partners share in agreed amounts of the profits and losses that may be incurred, but upon the insolvency of the company each partner is liable for 100% of the company’s debts. In this situation even personal assets are at risk, and if one partner becomes insolvent the entire partnership could be at risk. Some advantages are it is a pass-through entity, meaning that all tax responsibility is that of the partner’s personal income tax return. The partners can take advantage of losses on their personal income taxes. There are no stockholders to answer to and each partner can take advantage of their individual talents and apply them to a specific part of the business.
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