In a sole proprietorship one person gets to control the decision making and reap the profits. c
Unfortunately, a sole proprietor is individually liable for debts and damages incurred by the
business. c A partnership allows for additional individuals to contribute capital and management
duties. c Partners share in responsibility for debts and damages of the business and may risk personal
assets. c Furthermore, every time a partner wants to leave or join, the partnership must be reformed.
Members of both types of organizations will be taxed at their personal tax rates for their share of
profits or losses.
Corporations protect investors from personal liability beyond their investment in the business. c An S-
corporation will act as a flowthrough entity and investors will be taxed at their personal tax rates for
their share of income/losses; C-corporations will be taxed at corporate rates (and investors will be
taxed at personal rates for dividends received). c Corporations allow investors to come and go as they
can buy and sell shares of stock while the entity remains intact.
In setting up a tutoring business, I would choose to utilize the advantages of an S-corporation. c It
would allow additional investment from others while avoiding the potential for double taxation.
I decided I wanted to be an accountant after my first accounting class in high school. After
graduation, I started to pursue my dream but it did not come easily. I attempted to get my degree
several times but life seemed to get in the way. Finally, when my children were in elementary school
I succeeded. They are now grown and out of the house so I have decided that now is the time for
me to get the master’s degree that I have talked about for so many years.
I am currently working for a boutique public accounting firm in Florida and have been with them for
the last 2.5 years. I work on the accounting services side, not the tax side. Most of my clients are
non-profit corporations but I do have a variety of companies that are for profit. Prior to my public
accounting days, I worked for private companies in various industries.
When deciding how to structure a new business venture, several aspects must be considered. These
include the ease and cost associated with the formation, the amount of liability one is will to
assume, tax implications and the complexity of regulations and accounting.
Sole proprietorships and general partnerships are very similar to each other. They are easy and
inexpensive to set up. For partnerships, a written agreement is preferred but it is not required. The
income or loss from the business is passed along to the owner(s) personal tax return whether a
disbursement has been taken. The owner(s) are also personally liable for company debts. Sole
proprietorships and partnerships can be a good choice for low-risk businesses and owners who want
to test their business idea before forming a more formal business (SBA, 2019).
Choosing to be a corporation offers some protection from the personal liability associated with sole
proprietorships and partnerships but it is more complex and costly to establish. Corporations fall
into two categories: C corporations and S corporations. Shareholders who employed by C
corporation are considered to be employees and benefit from non-taxable fringe benefits and are
only responsible for half of the employment taxes as the corporation is responsible for the other
half. If an S corporation has been elected, the employed shareholders are still only responsible for
half of the employment taxes but do not benefit from non-taxable fringe benefits. c A C corporation
is subject to double taxation. Its earnings are taxed first at the corporate level when earned, then
again at the shareholder level when distributed as dividends. An S corporation, by contrast, is
subject to single-level taxation, much like a partnership (Anderson, et al., 2023). Corporations can be
a good choice for medium- or higher-risk businesses, those that need to raise money, and
businesses that plan to "go public" or eventually be sold (SBA, 2019).
Anderson, Kenneth, et al., editors. Pearson’s Federal Taxation 2023 Corporations, Partnerships,
Estates & Trusts. Pearson Education, Inc, 2023.
U.S. Small Business Administration. “Choose a Business Structure”. November 19, 2019,
https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
