Law 5 Formation of Business Entities; Assignment

Law 5 Formation of Business Entities; - Assignment Example Sole proprietorship is a business formed and controlled by the same person whereby the owner shares all profits and risks in the business (Balotti, 2011). A sole proprietor bears all the liabilities of the business including all debts, violations and losses associated with the business. From my professional experience, some of the advantages of a sole proprietorship include the ease of formation since only a business name and business license is needed to start the business (Emerson, 2009). The sole proprietor enjoys all the profits, decision making and control of the business. A small amount of capital is needed to form the business and tax benefits arise since tax returns are not filled as a separate business but as personal income of the business owner (Emerson, 2009). However, some disadvantages of a sole proprietorship business include the difficulties in securing expansion capital in the capital markets, the lack of continuity after the death or incapacitation of the sole proprietor and the direct responsibility for all debts, losses and business violations of the sole proprietorship business (Balotti, 2011). The second common form of business entity is the partnership. Some types of the partnership include the general partnership and limited partnership. General partnership business is created under common law where two or more people form a business with the sole objective of making a profit. It is created by partnership agreement that outlines the duties and method of sharing profits and losses amongst the partners (Emerson, 2009). Without such agreement, the profits and losses are shared equally amongst the partners. In my own experience, partnership has certain disadvantages since each partner is jointly liable for the wrong actions of the other partners and the business can terminate after the death, bankruptcy or on agreement of the partners (Emerson, 2009). The