Question

You decide to start a business. Distinguish between sole proprietorships and corporations on the basis of each of the following

1.  taxation of the business and those who receive a portion of the profits

2. Who is the party listed on contracts entered on behalf of the business

Answer 1

on the basis of

1. Taxation of the business and those who receive a portion of the profits
   • A sole proprietorship is one of the easiest forms of business to start partially because it requires no filing of documents. If a single person starts a business and takes no further steps, it is a sole proprietorship. All income or losses are taxed to the owner as personal income. This flow-through taxation is a significant benefit for many owners. However, a sole proprietorship also provides no liability protection for the owner. The owner is personally responsible for all liabilities, placing his or her personal assets at risk.

   • Unlike a sole proprietorship, forming a corporation requires filing articles of incorporation with the state where the corporation will conduct business. A corporation is a legal entity that is separate from its owners, called shareholders. The shareholders do not necessarily operate the business. Instead, shareholders elect a board of directors who then elects the corporation's officers to operate the business. Depending on the corporation, shareholders may also serve as officers.

2. Who is the party listed on contracts entered on behalf of the business

   • For sole proprietorship, identify them using:

     • their trading name;
     • the full name of the individual concerned;
     • the current address of the individual concerned; and
     • (if you want to push the boat out) some unique identifier, such as a national ID number or passport number.

   • For corporations, identify them using their:

     • full legal name;
     • registered office address;
     • company registration number; and
     • country of incorporation.