Different Types of Businesses
As discussed there are three different types of businesses, sole proprietor, partnership and corporations. With these businesses come many advantages and disadvantages that one will have to determine will best suit their own lifestyle. Starting a business is something very serious to plan and make sure you have the necessary financial backing to keep it running, and have the legal knowledge to keep yourself and organization covered.
Lastly, if you have the knowledge and product you know something about and have the background the business could become successful and the more know how could make running a business less stressful. Starting an adventure in opening a company will take much thought, planning, financial resources and legal aspects. The thought of an invention should be new and different than what is on the market now. The invention should also be what consumers are looking for, needing and safe. The safety will have to be fire and electrical proof and safe for being around children.
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The tax benefits in some areas could be the avoidance of being double-taxed as a corporation. The next tax benefit is you may be able to deduct your business losses to extent of total income that you have from all sources, including interest, dividends, and gains from sale of non-business property. Also if married and file a joint tax return, the business losses will offset spouses income. The ability to deduct losses as a sole proprietor may reduce total income tax burden and be useful during startup or downturn phase of a business.
One will have to research in their area what they are able to do on their tax returns. (Poznak 2010) As a sole proprietor the disadvantages would be full liability in law suits, limited resources for advancement and most finances come from out of pocket. (Ebert 2005) As with every business, what may be advantageous to one may be disadvantageous to another. Being a sole proprietor may have significant tax and legal repercussions, one should be aware to avoid unexpected and unintended consequences. (Poznak 2010)
The second type of business would be a partnership, where two or more owners share decisions and financial responsibilities. The advantages of a partnership is adding new talent, ideas, and financial help and taxing as an individual. Disadvantages would be still personally liable, legal “partnership” agreements and “agreements” on several issues; splitting profits and liabilities, trust. Transferring of ownership is another disadvantage. (Ebert & Griffin 2005) Lastly, the third option for a business is a corporation.
A corporation is considered legally separate from its owners and liable for its own debts. The corporation may sue and be sued, buy, hold, and sell property, make and sell products. As a corporation, they have unlimited ability to raise funds, attract new talent. Inventors are only liable for the amount of investment, not the firms’ debts. (Ebert & Griffin 2005) The corporation also has the advantage of claiming a one hundred percent deduction for health insurance the corporation purchases for the shareholders’ benefit.
They may also deduct the cost of life insurance, up to $50,000 policy, the corporation purchases for the shareholders. (Poznak 2010) The disadvantages for having a corporation will be the start up costs, the heavily regulated and incorporating complex legal requirements and paperwork for the area/state starting corporation in. Taxes for a corporation are doubled; you will have tax at the corporate level and then taxed again on the dividends paid to stockholders and many financial reports (IRS, SEC, etc).
Since the corporation has its own existence, it pays taxes on its own income, then with giving oneself an paycheck, you get taxed on your income also. (Poznak 2010, Ebert & Griffin 2005) Any business endeavor is risky, whether it being a sole proprietor, partnership or a corporation. The need for which type of business to start, would be the need for health and life insurance. Proper planning and knowledge would be key to avoid any pitfalls. (Poznak 2010) The business type most likely to succeed would be a corporation.
As a corporation you have more talent, more ideas, and more financial backing. With a corporation, I could get the financial and managerial help that I need to succeed in my product, business, and growth. I will also have more resources to help finance my backing and have more liable coverage in insurance, lawyers, and accountants. Also with any company, I could trademark and copyright my product. To start a corporation will take much time, determination, and will-power. This will not be an easy task but one that will have patience and support of family and friends.