Starting a new business or running an own business is one of the life
goals of most of the people in the world. Some people were running a business
from their early age of life, from a being a member of a family business or
starting by own. Others may be starting a new business due to financial
difficulties or financially backups in the life. United State is known as the
land of opportunities, anyone can start a business and be a success. There are
so many benefits of starting a business and there are many risk factors too.
When considering starting a new business it’s very important to choose
what type of business organization you going to establish. The structure of the
business affects tax issues, financial, legal issues, personal liability etc.
Basically, it is three different legal forms of business structures/
A sole proprietorship is a business owned and functioned by one person.
This is the simplest business type and the most numerous form of business
organization in the United States. Today there are 23 million sole
proprietorships and it is over 70 percent of total US businesses. Sole
proprietorship includes small businesses such as a local grocery, small daycare,
providing a service (IT consultation, art /Music class, painter) local food
truck etc. The proprietor is personally, legally and financially responsible
for the business. Simple steps to establish the business as getting a business
registration and easy to dissolve too. The startup cost can be very low
and low operational overhead cost in this business. Most of the business can be
starts for less than $ 1000. There are true stories that how small idea turned
into a successful business. One owner, he can own all the profit. This is
definitely going to be a new income source or additional income for the family.
Sole proprietorship typically got fewer rules and regulations. Being your own
boss gives an opportunity to control the business. Most of the owners got to
work long hours in some cases, but it may also allow having flexible hours
depending on the business. Most beneficiary fact in a sole proprietorship does
not need to pay corporate business income tax rates in the business. Taxes are
calculated as personal income. The possibility of double taxation is zero.
In the sole proprietorship, the owner has unlimited liability for the
business. All the profit, as well as the loss of the business, belongs
completely to the owner. This unlimited liability gives access to the creditors
to overtake business assets as well as personal assets for any debts. According
to the Forbes- Entrepreneurs records in the year 2014, 514,332 new businesses
started in the country; unfortunately, there were 548,159
closures and more than 55,000 bankruptcies. In many
cases, the life of sole proprietorship is limited to owner’s lifespan.
Most these businesses end when the owner dies. In a sole proprietorship, the
capitol is depended on the proprietors’ personal wealth. This is a barrier to
develop the business due to lack of insufficient capital. It is not easy to
raise a capital by an individual. But for small businesses, there are some ways
to get financial help. The common way for funding is personal savings or
personal loans. other ways are can ask money from friends and families, apply
for a Small Business Administration Loan, look for business grants, open a
business line of credit card are the other options. A well-organized business
plan may be the key to a success of any business. A strategic plan, fine market
analysis, better market strategies, strong management skills would lead any
business to the victory, not only the sole proprietorship.
The second forms of business organization is partnership.
This is basically similar proprietorship except there is more than one owner.
Two or more individuals can start a partnership business. This can be simple as
two brothers or few friends starting a business or several physicians sharing
the same building as partners, most of the law firms are in partnership
business structure and many real estate offices too. Partners are working as
co-owners of these businesses. Usually, the partnership is necessary to
register with the state. There are few different types of partnerships –
general partnership, limited and limited liability partnership. The general
partnership, all the partners share the profits or losses, and all have
unlimited liability for all partnership debts. Limited partners will
invest in the company and share in its profits, but are not responsible for
daily business activities and do not share in the business’s liabilities.
Partnerships can be more successful than the sole proprietorship taking the
advantages from two or more partners strength in the business while Sharing
individual skills and resources. Normally in a partnership contain a
partnership agreement. This can be simple as informal oral agreement or formal
written document. Always it’s better to have a decent agreement to avoid future
problems in the business. It Protects yourself and your business when a
question arises, written agreement as a guide. The partnership may have fewer
regulations than corporations but more than a sole proprietorship. Since there
are many partners in the business there is more opportunity to invest the
capital. A partnership must file an annual information return to
report the income, debts profits but it does not pay income taxes. The
income taxes can be taxed as personal income to the partners. The partnership
owns a limited life. A partnership terminates when a general partner attempts
to sell the share or dies. It’s complicated when it comes to a transferring the
ownership. Partnership likewise has more benefits and disadvantages for the
other business organizations.