Question

You have decided to open a business. What ownership method will you use? Please make sure to include three points to support your decision.

Answer 1

There are different ownership methods that a Business can use, It all depends in how much one is willing to invest and if there are any other owners as well. One can consider the below while deciding to open a new Business:

1. Sole proprietorship- The simplest structure is the sole proprietorship, which usually involves just one individual who owns and operates the enterprise. If you intend to work alone, this may be the way to go. The tax aspects of a sole proprietorship are especially appealing because income and expenses from the business are included on your personal income tax return. You have complete control of your business-you make all the decisions.

2. Partnership - If your business will be owned and operated by several individuals, you'll want to take a look at structuring your business as a partnership. Limited partnerships are generally not the best choice for a new business because of all the required filings and administrative complexities. One of the major advantages of a partnership is the tax treatment it enjoys.

3. Corporation- Using the corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and tax requirements. The biggest benefit for a small-business owner who decides to incorporate is the liability protection he or she receives. Corporations also continue indefinitely, even if one of the shareholders dies, sells the shares or becomes disabled.

4. Limited liability company- An LLC is a much better entity for tax purposes than any other entity. Earnings and losses pass through to the owners and are included on their personal tax returns. Like partnerships, LLCs do not have perpetual life. Some state statutes stipulate that the company must dissolve after 30 or 40 years

When making a decision about the type of business to form, there are several criteria you need to evaluate:

1. Legal liability

2. Tax implications

3. Cost of formation and ongoing administration

4. Flexibility

5. Future needs