A business is defined by Wikipedia as an unincorporated private organization or corporation engaged in commercial, corporate, or industrial activity. Businesses may be for-profit or non-profitable entities that work to meet a social cause or further a personal charitable purpose. Some types of businesses are involved in multiple industries, while others are small, locally based companies operating on a sole proprietor basis. A business can also be an individual entity acting for itself, or be a partnership with other business or individuals.
The majority of people and corporations make their profit through personal income taxation. Corporations are not taxable entities and are therefore not subject to personal income tax. Profits and dividends may be taxed according to state taxation systems. Corporations are required to pay taxes on dividends but are exempt from paying capital gains tax. Capital gains tax is calculated by taking the difference between the stock price and the corporation’s stock price plus the amount of any paid-in capital.
A corporation is a separate legal entity from its shareholders. This means that the same personal assets held by a shareholder are owned by the corporation and not by the corporation. The same is true for the same debts and liabilities. An individual shareholder is liable for all of the corporation’s debts and liabilities, while a corporation is only responsible for its own debts and liabilities. This can make it difficult to know exactly who owns what if one part of the business happens to be involved in an accident.
Some types of corporations are hybrids, which are corporations that are partially owned by one person or group of people. One such hybrid entity is the c corporation, also known as Partnership, limited liability company or a limited liability partnership. A C corporation’s income and losses are limited to its profits. Unlike partnerships, both partners benefit from the corporation’s profits and pay taxes based on their individual profits, rather than on the profits of the business.
A partnership is a two-party relationship. Partnerships are created for profit and share ownership. Because they are for profit, partners are personally liable for the corporation’s debts and obligations, as well as its profits. This means that a partnership could fail and the owners could be sued personally, which would mean personal bankruptcy for each partner. A partnership cannot, however, succeed unless both partners are personally liable for its profits.
A sole proprietorship, also called a DBA, is a unique type of business entity. A sole proprietorship is a corporation that exists solely for the owner’s benefit. All of the business’ debts and obligations are solely owned by the owner. A sole proprietorship can exist for just one year if the owner decides so, and then the business can disappear immediately. There are very few other ways for a business to exist solely for the benefit of one person.
Many small businesses, sole proprietorships, and partnerships are actually pass-through businesses. These are businesses that allow many people to work from home and receive commissions for their work. This allows the owner to be called a “commander”, or even a “chief executive officer”. However, these types of businesses are still required to file tax reports with the IRS, and pay taxes on their incomes.
Many businesses in the US, such as partnerships and sole proprietorships, have some kind of revenue sharing agreement in place and have either been legally established or formed using a written contract. Some partnerships offer their partners limited liability, while others may allow partners to write-off their joint income on a joint-venture partner’s tax return. There are many different revenue sharing options available to business owners, and many of them are explained below.