sued you? If you incorporated your rental property business, then the tenant would be suing the corporation, not you as the individual. But if you hadn’t incorporated, you, the individual, would be sued. How accepting are you of losing your personal property in a lawsuit?
Sole Proprietorships All the business’s assets, liabilities, and operations are a part of the owner’s personal financial situation. As the name indicates, there can only be one owner of the business, and no separate business entity exists. Because of that, for tax purposes, everything from the busi- ness (profits, losses, etc.) is passed through to the owner. The busi- ness doesn’t file its own taxes, and there are no papers to file to set up the business. The owner is also personally liable for his or her business and any legal action that may be taken against it. The best bet for a sole proprietor to help protect against any type of legal claim is to purchase commercial liability insurance.
Although there is the advantage of being the only person in con- trol of your business (i.e., no shareholders or partners to answer to), it also becomes a potentially huge liability when you consider that you are solely responsible both on the business front and personally.
General Partnership Partnerships are associations between two or more persons to carry on a business. The definition of “person” here is very broad and can be an individual or an entity, such as a U.S. citizen, nonresident alien, resident alien, corporation, limited liability company, trust, or other type of part- nership. However, there are no registrations to file, and a written part- nership agreement is not required, although it is usually a good idea.
The partners of a general partnership are jointly liable for the debts, claims, or other obligations arising from the partnership. There is an unlimited personal liability for claims against the business, even those resulting from another partner who is acting for the business.
From a tax perspective, general partnerships are like sole propri- etorships. That is, they are pass-through entities and pay no tax on their own. All partnership gains, losses, credits, and deductions are taxable to the partners individually. While the partnership pays no taxes, it does report the taxes because it is required to determine each partner’s share.