Business Entity Selection People go into business to make money. Unfortunately, not everyone considers the correct way to structure their business so that it can optimally earn money while operating within the framework of the law. Failure to carefully select the structure for a business can mean the loss of that business and the assets associated with it. I will discuss the various types of business entities that exist and the pros and cons of each. Specifically, I will explore • Sole Proprietorships • General Partnerships • Limited Partnerships • Corporations • Limited Liability Companies I will also discuss the following business situation: • Joe's Lawn Care and Landscape Equipment Rental I will determine whether the business is operating in a manner effective, as the business currently exists, or if changes need to be made to the business entity. A sole proprietorship is a business individual or married couple. Sole proprietorships are the most common form of business structure. This type of business is simple to form and manage and can enjoy greater management flexibility, fewer legal regulations and fewer taxes. Although this is the easiest form of business to start, “income and losses are treated as personal and will be filed on a Schedule C along with your regular Form 1040 tax return” (IRS, 2004). If profits are minimal, the owner will pay less income tax with this form of business than with a corporation. However, the entrepreneur is personally responsible for all debts incurred by the business. Sole proprietorships are not eligible for special corporate income tax rates because all income is considered individual income. Additionally, sole proprietors are not protected from personal liability if they get into trouble with a customer. If an angry customer decides to sue, they sue the owner personally. If the owner must declare his company bankrupt, he personally declares bankruptcy. Furthermore, by definition, a sole proprietorship can have only one owner, and that owner must be a “natural person” (i.e., not a corporation, trust, LLC, or other similar entity). Finally, you cannot sell or inherit a sole proprietorship. property. A general partnership is made up of two or more people (usually not a married couple) who agree to contribute money, labor and/or skills to a business. Each partner shares in the profits, losses, and management of the business, and each partner is personally and equally liable for the company's debts. In terms of asset protection, general partnerships can be even worse than sole proprietorships.