Sole proprietorships - Ownership is limited to one owner, meaning others cannot buy shares. Difficult to transfer ownership to another person. Owner has unlimited personal liability, meaning that if the business defaults on a loan the owner must pay with personal assets. Very straight forward to set up, the majority of businesses use this type even though it only provides 5% of the revenue in the economy. Partnerships - Similar to sole proprietorships except it can have more than one owner, thus more owners are liable. Partnership ends on the death or withdrawal of any single partner. Partners can avoid liquidation if the partnership agreement provides for alternatives such as a buyout of a deceased or withdrawn partner. Differentiation between limited partners and general partners. Limited partners have no liability, outside of their initial investment and mostly just keep an eye on how their investment is going. General partners are personally liable in the manner described above, and are the ones actively running the company and being personally liable. Limited liability companies (corporations) - Owners’ liability is limited to their investment and not personally liable for the company. Differentiates into two types: Public companies and private companies. Wherein public companies are allowed to trade their shares on a stock exchange, meanwhile a private company is not. Corporations are created with a legal document and is more costly, often lawyers are hired to create it. A corporation is technically a legal entity, similar to a person, in that it can create wealth, make contracts, and its assets are protected under the constitution. No limit on the number of owners in a corporation (supposedly limited by number of shares). Tax implications for different types of corporate entities - - - A corporation’s tax is separate from that of its owners, and therefore, when a corporation pays out dividends to its owners (which it has paid taxes on), the owners pay taxes on what is received to them. Owners of corporation therefore pays taxes twice on what is distributed to them, relative to the degree to which they own the company. This is called the classical system Alternative system exists called imputation, wherein no corporate tax is applied, but the profit goes directly to the shareholders and must be taxed under the personal tax income, this is also the case if nothing is distributed to the shareholders, i.e. if the profit is contained within the corporation. Most corporations use the classical system, as the Permutation system has a lot of restriction in terms of trading and how many can own them, companies pursuing the permutation system must be eligible under the subchapter S tax treatment.
