Other Entities
Sole Proprietorship
A business with a single owner with no formal or separate form of business structure is known as a sole proprietorship. The owner has sole control and responsibility of the business. A sole proprietorship is easily formed, allows important decisions to be made quickly, and typically has fewer legal restrictions. In this situation the owner and the business are indistinguishable. The business has limited life and cannot be transferred to others. The sole proprietor's responsibilities include:- Obtaining all capital
- Personal liability for all debts and claims against the business
- Claiming all profits and losses on the owner's personal income tax return
- Obtaining state and local business licenses and permits
- Recording the name of the business with the local circuit clerk
Partnership
A partnership is an association of two or more persons acting as co-owners of a business. A partnership can be created by an oral or written agreement between the parties involved. However a written agreement is highly recommended. This agreement should set out the responsibilities and obligations of the partners as well as the percentage of ownership.A general partnership:
- Requires no official registration beyond that required for a sole proprietorship
- Does not protect the personal assets of the business partners from claims against the partnership
- Is required to file informational returns with the Internal Revenue Service and local state Income
- Tax Division Shares its profits and losses among the partners according to their ownership percentage. Partners are then required to claim this income or loss on their personal income tax return
Limited Partnership
Limited partnerships (LPs) are more intensely regulated than general partnerships. LP's consist of general partners and limited partners. The general partner(s) manages the business and have no liability protection. The limited partner(s) are usually investors that are not involved in the day-to-day running of the business and whose liability is limited to the extent of their investment.Limited partnerships:
- Are treated like a partnership by the Internal Revenue Service
- Were originally developed for real estate development ventures
- Are created by filing a certificate of limited partnership with the Secretary of State