Final Submission: Memorandum With Appendix In Module Nine, you will complete all necessary tax forms according to Section III of the critical elements. You will then submit a comprehensive memorandum

7-2 Final Project Milestone Four: Conclusion

Name: Yvonne Saunders Batchue

Institution: Southern New Hampshire University

July 8, 2019

A sole proprietorship is a type of business where the owner and the enterprise are inseparable. It means that the owner manages everything and decides all the activities in the firm. A partnership, on the other hand, is a type of business entity where friends or people with the same interest come together to transact business activities. They share management and profits based on the shares each person has. It is this that makes sole proprietorship to be advantageous over the partnership. According to Dungan (2017) decision-making process in a sole proprietorship is easier as the owner is the sole decision maker, unlike in partnership where the decision to be made has to be discussed and a lot of consultations done among the partners before any implementation made thus leading to time wastage and failure to make critical decisions when there is a vital need. Sole proprietorship allows maximum incentives of the business, unlike in partnership where there is a minimum incentive in the business due to communal ownership of the firm. A great sense of satisfaction and achievement is also achieved much easily with sole proprietorship than with partnership because of communal ownership which limits members to achieve more.

The advantages that a partnership has over sole proprietorship are easy to raise startup capital, has high chances of borrowing because of security, easy chances of growth due to different ideas in management (Chadwick, 2018). The main disadvantage of a sole proprietorship over the partnership is that sole proprietorship has unlimited liability where the owner bears all the liabilities which at times can lead to the dissolution of the firm if the owner loses all their property. There is also the disadvantage of limited startup capital as all the funds come from the owner who also makes all the decision making them to have a limited managerial ability, thus limiting expansion and growth. Partnership, on the contrary, has sharing the liability as its main disadvantage as the mistake of a single partner is jointly shared by all.

A corporation is an organization empowered by the state to transact business either as a group or as a company. There are two types of corporation the S and C corporations. An S corporation is a corporation that deals with a federal income tax that complies with the subchapter S of internal revenue code in chapter one. It is, therefore, the corporation that is allowed by the federal government not to pay any income tax. A C corporation, on the contrary, is a corporation that the federal income tax law mandates to pay its taxes separately from its owners. A C corporation is thus different from an S corporation in the way that they are taxed (Kumar, 2018). A C corporation pays tax while an S cooperation does not pay its tax; therefore, the best tax vehicle that a client should use for accounting information about a business is the C Corporation. The client would or should not use a sole proprietorship because it is always considered as an S corporation that does not pay its taxes or pay its tax singly making it costly for the owner. Payment of taxes ought to be felt at a personal level, and in partnership also, the taxes are paid as a group making it hard for a client to account for their taxes as mandated by the law.

Business liquidation is the process by which a business enterprise’s life is brought to an end, and all its assets distributed to its claimants when the company becomes insolvent. The option that a firm has for it is not to be liquidated is to be financially stable and continue to pay its taxes. It is through the taxation process that a company can be rendered insolvent or not and then liquidated. The process of its liquidation can come in three different ways. The first way would be through the creditors’ voluntary liquidation (CVL) where the company is bankrupt and cannot, therefore, pay its debts (Wainer, 2015). Based on the law, the asset of such a company is sold to pay its creditors. Secondly, liquidation can be through members’ voluntary liquidation (MVL) where all the shareholders agree to dissolve the business based on the best reasons suitable to them or bankruptcy. The last reason would be through the compulsory liquidation that the government’s judiciary is involved in dissolving the company.

Business organizations are always formed to achieve set objectives and missions. At times the missions that they are to attain are met, and the firm can either choose to transact new business activities, start all over again or end its operations. If the company decides to transfer its activities, it will imply bringing on board new members or changing its operation, which can be done in four ways. The first way would be through adding new partners. It thus would mandate that the company opens its membership to applicants who have the same business objectives to join for it to continue (Kumar, 2016). It always comes in case some members retire or dies, or the business objectives are changed. Secondly, transfer of business activities would be through the sale of the business enterprise; it would mean that the buyer would either choose to continue with the same business line or introduce new ones. The third means of transferring business activity is through a lease purchase. Here, the lessee is given full rights to manage the company for an agreed period and during the period decides to the activities they will transact. The last way of transferring business activities is through family member transfer. It is a scheme that is typically used to avoid payment of estate taxes.

In a sole proprietorship, one owns the company and therefore cannot sell the company to settle the dues. In the case of debts, only the assets are sold to settle them hence is not easy to transfer its activities. A partnership, on the contrary, is a situation where the ownership of the firm is shared, and therefore when there is a need of transfer, all the partners must give their views, and if need be, an operating agreement can be signed (Kumar, 2016). While in a C corporation, the ownership is based on the number of shares that one has made the percentages to change frequently in the public corporation as they are linked to the stock markets. In the private corporation, however, the transfer of the shares is done/sold and resold only once a year, making it difficult to change or sell them frequently. As in C corporations, S corporations transact in the same way only that all expenses and incomes are given to the owners without taxation at the company level (Kumar, 2016). Again, its owners cannot exceed 100 if it exceeds, it automatically changes to a C corporation therefore at all times the share that is open for sale or transfer is of the members who have exited through retirement or death. The numbers must always be maintained at 100 members. It is for these reasons that various bylaws govern the qualifications for one to be a member of the organization. It is through these policies that the number is always slimmed to be at 100 all the times.

Reference:

Dungan, A. (2017). Sole Proprietorship Returns, Tax Year 2015. Statistics of Income. SOI Bulletin, 37(2), 2-28.

Chadwick, W. (2018). Significant others: creativity & intimate partnership. Thames & Hudson.

Kumar, M. (2018). The Persistent Appeal of S Corporations: How Tax Cuts Might Not Help Small Corporations. Michigan Business & Entrepreneurial Law Review, 8(1), 133-150.

Wainer, H. (2015). The insolvency conundrum in the Companies Act. South African Law Journal, 132(3), 509-517.

Kumar, A. (2016). State holding companies and public enterprises in transition. Springer.