Forms of Business

Forms of Business

General Partnership

A general partnership is a consensual association of two or more individuals in order to conduct business in collaboration to earn profit. When forming a partnership, the partners have to establish a partnership agreement (be it oral, written, or implied). By having an agreement, the business would operate under the Uniform Partnership Act. The company or the organization must be operated with the motive of profit-making for the association to be termed as a partnership, even if the organization does not earn profit. The partners are held personally liable for any debts and/or obligations due to the partnership. Partnerships do not pay federal income taxes. Each partner will have to report the income and losses of incurred by the organization on their returns on income tax. However, the organization is liable to file an information return to the government to show if there were income or losses for the year. By making partnerships do this, the government can make sure partners are reporting the accurate amount on their personal taxes. Two major advantages of a general partnership are: 1) simple and inexpensive to start and operate, and 2) no registering with state or paying any fees to start. One major disadvantage is all partners are held liable for the debts and liabilities of business (including judgment as result of lawsuit) (Nickels et al, 2005).

Scenario: A large retail store would be a great candidate for having a partnership. The store would handle anything that would be needed by someone that would not be food (such as: curtains, rugs, spark plugs, dishes, cleaning supplies, etc). By being partners, the owners could have a schedule made up to where at least one of them was in the store at all times during open hours. They would have help making the decisions on how to proceed to add more items to the ones already being sold. They would each have a stake in the business to make sure everything runs smoothly and be less stressful on each of them.

Corporation

When owning a business that is not a corporation, a person has to weigh the pros and cons of turning that company into a corporation. Similar to other forms of business, a corporation has its advantages and disadvantages. The business owner has to evaluate the different elements of the corporate form of business. This is to help him/her determine if becoming a corporation is the right thing to do. Some of the advantages of corporate form are as follows:

Advantages

• Limits Liability - not personally liable for business assets and debts

• Tax Treatment - corporate taxes separate from personal tax liabilities

• Everlasting - does not die when owners do

Disadvantages

• Costs - costs to incorporate business in state where operating

• Double Taxation - For C corporations only - pays taxes on profits of business and again when dividends are paid to shareholders.

• Documentation - more records are required for corporations (such as: annual reports, tax returns, business bank accounts, shareholder meetings, board of director ...