BULE 303: (CH 17 Business Organizations)

What is a sole proprietorship?

The simplest form of business, in which the owner is the business.

How does a sole proprietor report business income?

The owner reports business income on a personal income tax return.

What is the legal responsibility of a sole proprietor?

The owner is legally responsible for all debts and obligations incurred by the business.

What advantages of a sole proprietorship?

proprietor owns the entire business and has a right to receive all of the profits

Flexibility in Sole Proprietorship

A sole proprietor is free to make any decision she or he wishes concerning the business, including whom to hire, when to take a vacation, and what kind of business to pursue.

Taxes - Sole Proprietors

A sole proprietor pays only personal income taxes on the business's profits.

Disadvantages of Sole Proprietorship

- The proprietor alone bears the burden of any losses or liabilities incurred by the business enterprise

- When the owner dies, so does the business—it is automatically dissolved

- The proprietor's ability to raise capital is limited to personal funds and the funds of those who are willing to make loans.

Partnership

A business in which two or more persons carry on a business for profit. Partners are co-owners of a business and have joint control over its operation and the right to share in its profits.

What are the three essential elements the UPA' s definition of a partnership

1. A sharing of profits and losses.

2. A joint ownership of the business.

3. An equal right to be involved in the management of the business.

pass-through entity

A business entity that has no tax liability. The entity's income is passed through to the owners, and they pay taxes on the income.

information return

A tax return submitted by a partnership that only reports the income and losses earned by the business. The partnership as an entity does not pay taxes on the income received by the partnership.

What is every partner entitled to

the proportion of business profits and losses that is designated in the partnership agreement

Disadvantages of Partnership

Partners are personally liable for the debts of the partnership. unlimited liability because the acts of one partner in the ordinary course of business subject the other partners to personal liability

limited liability partnership (LLP)

A hybrid form of business organization that is used mainly by professionals who normally do business in a partnership.

Limited Liability Company (LLC)

A hybrid form of business enterprise that offers the limited liability of the corporation and the tax advantages of a partnership.

Taxation for LLC's

Can choose to be taxed either as a partnership or as a corporation

Franchises

Any arrangement in which the owner of a trademark, a trade name, or a copyright licenses others to use the trademark, trade name, or copyright in the selling of goods or services.

Who determine the territory to be served

The Franchisor however some franchise contracts give the franchisee exclusive rights, or "territorial rights," to a certain geographic area