A business owner must be aware of the primary business organization forms, their characteristics, and the law that governs their management and formation.
A Sole Proprietorship is created when an owner simply begins business under his own name. It is simple and cheap to form and is usually chosen by one-person businesses. The owner owns all of the assets. The owner also has unlimited personal responsibility for business liabilities. The owner is taxed on all income from the business at applicable individual tax rates. The owner may need to register a ficticious name with the Florida Department of State
A General Partnership is formed when two or more persons carry on as co-owners of a business. Each partner participates in the management, owns the assets, and shares the profits and losses. Each partner is personally liable for business related obligations and are taxed on their individual tax returns.
A Limited Partnership differs from a general partnership in that there is at least one limited partner who contributes capital, but does not have substantial management control. The limited partner is allowed limitation of liability to the extent of their capital contribution to the partnership.
A Limited Liability Company combines elements of partnerships and corporations. LLCs must file articles with the state like a corporation. As in a limited partnership, the owners only risk losing money that has been invested into the LLC and only LLC assets are used to pay its debts. However, an LLC is not a separate taxable entity, and LLC owners report profits and losses in their individual tax returns.
A Corporation is a separate legal and taxable entity. One must comply with statutory formalities to set up a corporation. Barring certain exceptions, the owners of the corporation are protected from the corporation’s liabilities and they file their own tax returns.