Business Entity Selection: Proprietorships and Corporations

Business Entity Selection
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Sole Proprietorship
Sole proprietorships enjoy the benefits of a separate tax rate that is below the corporation tax rate. Also, owners can protect their properties and income from tax audits by taking off lawful company expenses. However, sole proprietors are subject to taxation irrespective of whether the business incurred losses and the tax rates are sometimes higher than corporate taxes (Woodruff, 2019). Payments to sole proprietors working at the enterprise are viewed as drawings, and other payments coming to the business are treated as retained profits.
Partnership
Members in a partnership contribute to the financing capital and business resources to the partnership and share the profits and losses of the partnership. Partnerships have multiple disadvantages associated with their operations. For instance, partnerships are not taxable bodies. Their profits and losses are passed to owners’ tax returns, which are detrimental when the shared profits are negative (Woodruff, 2019). Also, partnerships must file annual information returns indicating the enterprise’s profits...