Different Forms of Businesses: Sole Proprietorship, Partnership, Corporation:
1. Sole Proprietorship
- Business owned by one person.
- The owner and the business is considered as one under the law, and files only one tax return.
- The sole owner owns all the assets of the business.
- The owner is not eligible for employment insurance if the business does not succeed.
- The sole owner is responsible for everything about the business including legal liabilities and debts.
2. Partnership
- A business owned by more than one person, but is not incorporated. The owners are partners in the business.
- Partnerships are less complicated to form than Corporations.
- If the business fails, the partners are responsible for the obligations of the business.
- If one of the partners dies, the partnership ends and the remaining partners need to create a new partnership.
- If the owners suffer a loss in the business, and they have another form of income, they can use the business loss to reduce the tax to be paid for the other income.
- The partnership could be General or Limited.
- General Partnership is when all the partners are responsible for the profits and losses of the business.
- Limited Partnership is when partners have an agreement on their participation and contribution in the business.
3. Corporation
- Unlike sole proprietorships and partnerships, corporations are a separate entity from the owners.
- The corporation is its own separate “person”.
- Shareholders own the corporation.
- The corporations still exists even if a shareholder dies.
- The corporation is responsible for its own obligations (assets, debts, legal issues). In most cases, the people involved in the corporation are not personally responsible for the obligations of the corporation.
- The business files its own tax return. So you will have to file two tax returns.
- Forming a corporation is more complicated and are much more scrutinized by the government.