Write about is a referred to as sole proprietorship

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Reference no: EM133198499

Question: For this milestone, you will discuss Case Study Three. Identify the main types of business entities, and discuss the advantages and disadvantages of each. Your active participation in this discussion is essential to improving your understanding of the advantages and disadvantages of the various business entities. Actively engaging with your peers will help you complete the remaining critical elements for the final project.

The first type of business that I will write about is a referred to as sole proprietorship. A sole proprietorship is a business that is owned and ran solely by one person. A sole proprietorship had many benefits to it. All decisions e.g. management, hiring, business hours, and any change in business model. As a sole proprietor (SP) you also keep all the profits, thus your income from your business is taxed as a personal income. On the other hand, there some major disadvantages. Liability wise, you are considered a sole entity and therefore can be personally sued. Business can be hard to maintain, as a sole proprietor you are also solely liable for all debts accrued from your business and might have to use personal means to pay them off. Along with that, all start up costs fall directly onto the SP which can be difficult when just starting off.

The second type of business is a partnership, there are five different types of partnerships. A partnership consists of two or more people who co-own a business for profit. There are general partnerships, limited partnerships, limited liability partnerships, cooperatives, and joint ventures. Some of the benefits of a partnership, is that they are easy to create and generally do not require a formal or official agreement. Income is typically taxed as individual income and can deduct business losses from their income. Some disadvantages are that partners are personally liable for firm debts.

The third type of business is a corporation, which is a legal entity formed by selling shares of stock to investors who then become shareholders (owners of the company). The shareholders elect a board of directors, who then hire the officers to run the day to day business. Corporations are also considered separate legal entities. There are a lot of advantages the corporation can be held liable and sued , but shareholders can not. The income made as a shareholder is considered personal income and is taxed as such. There are also some major disadvantages though. There are a lot of formalities that have to be met when starting a corporations and corporate income is technically taxed twice.

Lastly, there are limited liability companies. A limited liability company is form of business that combines the tax advantage of a partnership and management flexibility of a partnership with the limited liability of a corporation. There are many benefits to this type of business. They are relatively easy to start with minimal paperwork, they are considered separate entities, they can choose between being taxed as an individual or taxed as a corporation, and each member is only liable for the worth of their investment capital.

In reference to this case study, with the given knowledge it seems that Jeb and Josh have entered into a partnership. Therefore both parties are liable for any debts acquired because of the accident. Since they have entered into a partnership v. starting a corporation both parties could be liable to pay from their personal funds. This could potentially be a heavy momentary loss for a business, given that they just started and due to the fact that Jeb has gone bankrupt at his other company. When looking at Jeb's bankruptcy debts, the business could potentially be effected depending on how many other items Jeb owns that could be liquidated.

Reference no: EM133198499

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