No single form of business ownership can be identified as ideal for all types of business establishments. Consequently, businessmen wishing to establish a small business may either choose to be a sole proprietor or co-own the small businesses with other businessmen through partnership.
In addition, the businessman can establish a privately held corporation which would limit their liability to their creditors. Business owners commonly use three main criteria when choosing the appropriate form of business ownership. They have to consider person liability, income tax rules and legal formalities associated with each form of ownership in relation to the type of business.
The real estate business is associated with numerous risk especially those related to the foreclosure crisis and the broker may seek to establish an S corporation by associating with other shareholders and the owner may limit the number of owners by limiting the number of stockholders who are also directly involved in the daily activities of the company (Sargent and Sargent 204).
Since the S corporation is a separate entity from the real estate broker, it has the legal capacity to contract and conduct business activities independent of the brokers and consequently serves to minimize risks for individual brokers.
This form of ownership is beneficial since it is gives the owners limited liability which protects the stock brokers from liabilities from debts which upon this establishment are considered a legal obligation of the S corporation. In addition, the fact that the corporation exist independent of its owners gives it an indefinite life regardless of death or incapacitation of owners and the S corporation ceases to operate only when it’s properly dissolved.
Further, the S corporation lacks income limitations and the stockholders are allowed to earn an unlimited amount of income. One major advantage of the S corporation is that like other unlimited companies, it does not pay income tax itself and the shareholders reports their share of profit and loss on their personal tax return (Sargent 204)
A tax return preparer prepares compensations or may employ another person to prepare all or part of all tax returns or return claims. His work entails direct consultation with clients and consequently he may decide to establish a sole proprietorship business in which he is the sole owner and runs all the operations of the business.
This business ownership is simple and requires limited legal formalities hence it is easy to establish. Further, the owner reports his profit and loss to personal income tax returns since the business does not exist as an independent entity. However, the owner has unlimited liabilities and creditors can claim his personal properties to offset debts.
The skateboard park business owner on the other hand may seek to establish a general partnership where his business will be owned by two or more owners. This serves to distribute liability to a larger number of people since all the partners are liable to pay debts to creditors (Sargent and Sargent 202).
The business also does not pay taxes and the owners report their share of profit and loss to their personal tax return in addition to sharing losses between partners (Sargent and Sargent 202). However, the partnership requires high level of trust between the partners which is not guaranteed in business associations.
A toy manufacturer seeks to increase output as well as profitability of his company. Consequently, he may decide to establish a limited liability corporation where shareholders and the owners will be separated from the business entity granting them limited liability (Sargent and Sargent 204). However, there are numerous legal formalities associated with this establishment and the procedures are cumbersome (Sargent and Sargent 204)
Sargent, J Dennis; Sargent, S Martha. Retire and start your own business: five steps to success. New York: Nolo, 2008. Print.