A Matrix to analyze different forms of business
Description of a future business form
I want to own a business organization once I graduate. In this case, the most desired form of business would be a sole proprietorship in the hotel and hospitality industry.
A sole proprietorship is the simplest form of business according to the American law. One person or his family runs the business, but the firm is registered as a single person business. Therefore, the business is easy to form, start and run and all the assets of it are under the ownership of the proprietor.
However, sole proprietorship is the most risky form of business, especially when the level of liability is considered. For instance, the business is not a separate legal entity, which means that the owner is responsible for all the business debts as well as legal claims made against the firm (Ang, Lin & Tyler, 2010).
Nevertheless, it is possible for the business owner to protect himself from this liability exposure. For instance, the American laws allow sole proprietors to buy sufficient insurance coverage for their firms (Van Auken & Neeley, 2006). Otherwise, the proprietor’s assets must be used to settle any amounts beyond the coverage limits. In addition, the sole proprietors have the right to write strong enforceable contracts, but it is the responsibility of the business owner to keep the promises given (Van Auken & Neeley, 2006).
If the claims made against the business exceed the insurance coverage, the proprietor is personally responsible for the difference. It is worth noting that the insurance policy only covers the loss due to negligence as provided under the tort law. Any loss due to intentional actions of the proprietor is not included. For example, it does not cover losses for claims based on breaching contracts or those resulting from disputes with landlords or employees (Ang, Lin & Tyler, 2010).
The process of taxation is well defined in sole proprietorship. According to the laws, all income from the business should be taxed directly to the business owner. It is the responsibility of the sole proprietor to disclose the annual earnings of the business to the relevant authorities and submit the amounts claimed by the authorities as provided by the law. Losses and profits are reported in the same way and at the end of a fiscal year. However, if the business has hired employees, the law requires from the owner to have a Federal Employer Identification Number (Meiners, Mofsky & Tollison, 2008). In addition, the owner is required to pay payroll taxes that are deduced from the employees’ salaries as dictated by the law. To obtain the Federal Employer Identification Number, the sole proprietor simply fills a form known as SS-4, which is the application method to get employer ID Number (Van Auken & Neeley, 2006). The taxation of the employees of the sole proprietorship is done in the same way it is done in partnership and corporations, where the employer has the responsibility of submitting the names and salary levels of the employees, failure to which would results in a breach of the taxation law (Ang, Lin & Tyler, 2010).
Therefore, the sole proprietorship form of business that I want to own in future will have a number of advantages. For example, I will obtain the absolute control over the firm. In addition, the process of forming and running the business is relatively simple. I expect to run the business with the help of my wife, which will make it simple. In addition, I will have the right to hire experienced individuals in hotel industry as well as a firm manager to help us achieve high profitability. Moreover, the business is inexpensive because the legal documents needed for starting the business are few. In terms of taxation, the business will not be treated as a separate legal entity, which means that the income will be reported on my individual tax return (Van Auken & Neeley, 2006). Thus, I will avoid double taxation.
References
Ang, J. S., Lin, J. W., & Tyler, F. (2010). Evidence on the lack of separation between business and personal risks among small businesses. The Journal of Entrepreneurial Finance, 4(2), 197-210.
Meiners, R. E., Mofsky, J. S., & Tollison, R. D. (2008). Piercing the Veil of Limited Liability. Del. J. Corp. L, 4(2), 351.
Van Auken, H. E., & Neeley, L. (2006). Evidence of bootstrap financing among small start-up firms. The Journal of Entrepreneurial Finance, 5(3), 235-249.