When making a choice about what type of business an owner is looking at starting, selecting the type of organization is important. Understanding the difference between a sole proprietorship, a partnership, an S- Corporation, or a C-Corporation can make the difference. Not knowing what could happen if taxes are not done correctly, or if the business will be publicly traded.
Sole Proprietorship is one of the simplest businesses to start up as it only consists of one owner. A disadvantage of sole proprietorship would be the implications legally. With a sole proprietorship, a separation between business and owners in nonresistant, allowing any contract that needs signed be signed by the owner. Legally there is no difference between owner and business, and no protection for liability for the business. The accountability for all the debt falls to the owner, leaving the owner not filing special tax returns. The profits and losses for the business are to be filed on the owners 1040 form (Harroch, 1998). Being an owner, the owner is held responsible for paying all state and federal taxes of the business. The owner is subjected to the responsibility of covering taxes such as self-employment, social security, and Medicare. A sole proprietorship is also responsible for being held accountable for any errors on tax forms provided to the IRS along with any fines or penalties that may occur (Harroch, 1998).