A business is a company where individuals work as part of a team. In a normal business, workers work either to create and develop goods or services to sell or deliver to customers. Others still purchase the goods and deliver the services to the customers. The company owner, however, is the one who hires workers for such work. If a business owner wants his company to grow large, he must also hire workers to do the tasks that are required for such growth.
Now if a business has been established and if it intends to expand, one of the options he can take is to start a business through a sole proprietorship. A sole proprietorship is a legal entity that operates independently from any other existing company. This means that all the debts, liabilities and taxes that the company incurs are borne by its sole proprietor alone. However, there are some disadvantages that come with running a business as a sole proprietorship.
First, it means a complete separation of the business from its owner. Since the business is a separate legal entity, the owner can be held personally responsible for everything that happens in the company. He can be held personally liable for anything that his corporation does or obtains licenses for. Also, since the corporation is not a separate legal entity from the owner, creditors of the corporation are not allowed to pursue their claims against the owner.
Second, the costs incurred by a sole proprietorship are significantly higher. Because the company is not legally separated from the owner, the main article of the business entities that are incurred are expenses for capital expenditures and salaries of employees. There are, however, some ways to lessen the burden that the main article of the business entities bring. One way is to incorporate a corporation. There are many ways to incorporate a corporation, the most common of which is to incorporate a limited liability company, commonly abbreviated as LLC, through which all the liabilities and assets of the business are housed.
Limited liability companies have many advantages over sole proprietorships. First, they require less paperwork. Second, they do not have their own employees. Lastly, they are shielded from personal lawsuits brought against them by other parties. Despite these benefits, LLCs have certain disadvantages as well. Namely, it means that the company has few assets because there is no separate legal entity.
Unlike sole proprietorships and corporations, for-profit businesses are subjected to some laws that govern them. The IRS requires that a for-profit corporation have at least one employee and that each employee should have equal rights. The same applies to nonprofits. Furthermore, nonprofits and for-profit corporations are prohibited from engaging in activities that benefit themselves at the expense of the people who support them. In order to stay out of trouble, a company must maintain separate books at the end of the year.
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