Sole Proprietorships and General Partnerships

<h2> Sole Proprietorship <h2/>

<p> The sole proprietorship is the simplest form of doing business.  This makes it very cheap and easy to begin and therefore very attractive to many beginning small business owners.  The main problem with a sole proprietorship is that you are not only are you liable for what you do, but you are liable for your employee’s actions also.  This makes it a very dangerous entity when it comes to asset protection.  What many people don’t know is that sole proprietorships are entitled to tax protections and deductions allowed for corporations. Yet, this does not make it worth doing business as a sole proprietor due to the overwhelming liability. <p/>

<h2> General Partnership <h2/>

<p> The general partnership can be a good entity when there is more than one owner and active management participation is needed. It is also good for businesses in many states when they are just beginning.  General partnerships also benefit from flow through tax treatment which allows you to avoid double taxation.  Furthermore, there is a lot of flexibility when allocating income to the partnership.  This is also true when allocating losses, deductions, and credits.  This allows the partners to maximize their individual deductions.  <p/>

<p> The main problems with a general partnership have to do with asset protection.  Each partner can bind the other one without their prior knowledge.  So if your partner decides to get a large loan without your knowledge and something happens, you are personally liable.  This is because unlimited liability is assigned to both partners.  It is also very difficult to transfer assets within a partnership. It is extremely important to make sure that you have a very well drafted document.  This can be achieved by assembling a wealth team that can help you create an agreement that will protect you in a partnership. <p/>

<p> For more information about entities and which is right for your situation, log onto pfbs.com. <p/>