Sole Proprietorship: The business is owned by a single person. This person is the business. A sole proprietorship can range from a home day care to large beauty salon, or any small business. Sole proprietorships account for a large amount of small businesses in the U.S.
Advantages of Sole Proprietorship: * The Sole Proprietor owns the whole business. * The owner receives all the profits. * The owner does not need to consult with anyone else on the decisions of the business. All decisions are made by the owner. * There are no papers to filed with the state * The Sole Proprietor and his business are taxed as a single unit; the business owner files a 1040 with a schedule C. All business profits are personal income to the business owner. * The owner can charge of expenses of taxable income. * Profits are not taxed twice.
Disadvantages of a Sole Proprietorship: * All liabilities of the business are the sole reasonability of the owner. * All losses are the sole responsibility of the owner. * All legal responsibilities are on the owner * Creditors can go after personal assets. * Raising capital for the business is limited the sole proprietor’s personal funds or any personal loans he can get. * Continuity is a problem because the business is only in business as long as the sole proprietor is alive or keeps the business open.
General partnerships: Are created by the agreement of two parties that come together to form a business. A partnership can be terminated by both parties, but if one of the partners wants to continue in the business the partner who is staying will need to buy out the partner leaving. Partnerships can be risky because eighty percent of all partnerships fail with in the first 5 years.
Advantages of a General partnership: * Sharing of profits or losses * Joint ownership in the business