A sole proprietorship places all liabilities for finances and operations on the owner. The owner’s personal property is tied to the business, so he assumes a risk against his personal assets should the business experience financial hardship. Annual income tax returns are filed on a Form 1040, and the owner must also file self-employment taxes. The profits and losses of the business are reported through the owner and are taxed at the individual rate. The sole proprietorship business entity is the simplest form to set up, but the owner typically must sell the business to retrieve his investment.
A partnership entity has two or more owners sharing equal control, unless the partnership agreement states otherwise or the structure is set up as a limited partnership. Similar to a sole proprietorship, the profits and losses of the business flow to the partners and are taxed at the individual rate. Operating partners assume risks both legally and financially. Creditors can attempt to collect debts from the partners personal assets. To recoup his investment, a partner is generally required to sell his interest in the business.
A corporation can have an unlimited number of owners, also known as shareholders. In a corporation, the business entity remains separate from the owners in legal and financial matters. The profits and losses of a corporation are taxed at corporate rates, not individual rates. If the corporation realizes a profit, it is paid out to shareholders who must then report it as income and pay taxes on it at the individual rate. A shareholder in a privately held corporation must sell his interest to regain his investment. In a publicly held corporation, a shareholder can trade his shares on the open market.
3 broad classes of business enterprise
Service Business – A service type of business provides intangible products(products with no physical form). Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: schools, repair shops, hair salons, banks, accounting firms, and law firms.
Merchandising Business – This type of business buys products at wholesale price and sells the same at retail price. They are known as “buy and sell” businesses. They make profit by selling the products at prices higher than their purchase costs. A merchandising business sells a product without changing its form.
Manufacturing Business – Unlike a merchandising business, a manufacturing business buys products with the intention of using them as materials in making a new product. Thus there is a transformation of the products purchased. Manufacturing businesses combine raw materials, labor, and factory expensesin production. The manufactured goods will then be sold to customers.
Types of Ownership
When an enterprise is so organized the private individuals exercise and enjoy the rights and privileges of an owner in their own interest.
Controlled by political buddies as a municipal, provincial, government or by any instrumentality created by them.
It exists when the elements of ownership are divided such that private persons and public buddies share in the operation of the same enterprise.
A cooperative association has some elements of a large partnership and also many features of a corporation , although it is distinct from both .17 December 200918Guevarra Institute of Technology
The union affected by the absorbing of one or more existing corporations by another which survives and continues the combined business A form of business organization had its origin in a principle of law originally developed for safe guarding the property of minors and other persons not able or willing to administer their own affairs. MergerTrust17 December 200933Guevarra Institute of Technology