As people strive to get involved in operating a business, there are many enquiries concerning the various forms of business entities that can be set up--this article gives a brief description of each form.
SOLE PROPRIETORSHIP
A sole proprietorship is an unincorporated entity owned by one person-usually common in the service industry and usually owned by one person. The business is not considered a legal entity separate from its owner and taxes flow through to the owner of the business. Compare to the other business types this is relatively easy to set up. For accounting and reporting purposes it is important to keep some form of systematic records.
PARTNERSHIP
This is an unincorporated business owned by two or more persons. These persons are called partners. They have come together to operate a business, because of some compelling reasons--they might be buddies for some time, they might share a common passion, they might complement each other whereby one has the capital and the other person has the know-how etc. In this form of business there is a legal contract drafted that both partners should sign. This comes with legal ramifications involving how much each partner should contribute, share of profits--each partners responsibility for the partnership debt, ending the partnership among other things. Although there are do-it-your-self kits that one can use to establish a partnerships, because of the legal technicalities it is advisable to use the services of an attorney.
CORPORATIONS
These are incorporated entities under the laws of a particular state. Ownership is evidenced by shares owned by individuals called shareholders. One prominent benefit is that the shareholders enjoy limited liability--they are only liable for the company's debt up to the extent of their investment in the company.
The shareholders elect a Board of Directors, who then employ managers to run the business. It is also easier to raise capital with this form and it has perpetual life.
For more information on this and other accounting topics contact the author- Selvyn Evans.
1 comment:
Partnership firm is one that lots of business people are going for these days..and yes you have explained it that partnership firm is formed by an agreement between two or more people to own and run the business.
Accounting firm
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