The Pro t and Loss Statement is discussed in detail in 4. in .NET

Generating EAN-13 Supplement 5 in .NET The Pro t and Loss Statement is discussed in detail in 4.
The Pro t and Loss Statement is discussed in detail in 4.
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As a sole proprietorship, Norm and his business do not have a separate legal identity. If Norm inadvertently dishes up some salmonella with the broccoli cheese puffs, he may nd himself served with a lawsuit. He is personally liable all of his assets are at risk to creditors and claimants of his business.
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The partnership
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Imagine that Norm decides not to embark on the new business venture alone, but that he will make his assistant an equity partner. A partnership, unlike a sole proprietorship, is an entity with a distinct legal identity from that of its owners. A partnership, as a separate entity, les its own tax return. Like a sole proprietorship, a partnership determines its pro t or loss by subtracting its expenses from its revenue. The gain or loss from the partnership
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3 Choosing the Correct Legal Entity
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is divided, for reporting purposes, among the partners in proportion to their ownership interest or some other basis agreed on in a partnership agreement. The partners report their share of the gain or loss from the partnership on their individual income tax returns. The partners are taxed at their individual income tax rates. The partnership income may also be subject to the selfemployment tax discussed previously. Partners, generally, are liable for the debts and claims against the partnership entity. There is no limited liability except in the case where a partnership agreement provides for a special class of partners called limited partners. Limited partners share in the pro ts and losses of the partnership, as provided in the partnership agreement, but their personal assets are not at risk to creditors. Much law governing partnerships can be found in the Uniform Partnership Act (UPA), which is a model act adopted by most states. In the absence of a formal partnership agreement, the UPA, as adopted by a particular state in which the partnership is located, governs. The laws of most states assume that each partner has equal control over the management of the business unless the partnership agreement provides otherwise.
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Individual partners may be liable for unpaid tax bills and obligations of a partnership, which can place their individual assets at risk.
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Partnerships are usually less expensive to maintain than partnerships. The law imposes fewer reporting requirements on them. Additionally, there is not a separate return to prepare for the entity, as there is with a corporation.
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Limited partnerships
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Limited partnerships are a special kind of partnership, recognized in all 50 states. There are usually very strict formalities for establishing a limited partnership. If a business is set up as a limited liability partnership, a special class of partners receives limited liability. This means that they do not place their assets at risk. Limited partnerships are required to have at least one general partner.
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The corporation
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The corporation, unlike the sole proprietorship or the partnership, affords limited liability status to the owners. There are two types of corporations, C corporations (referring to a Subchapter C of the Internal Revenue Code) and S corporations. S corporations are small corporations that must have 75 or fewer shareholders and must meet other speci cally established criteria in order to receive favorable tax treatment. Generally, creditors and claimants of the corporation can proceed only against the assets of the corporation. They cannot collect a judgment from the assets of the owners. For the C corporation, this protection comes at a price higher taxes. Unlike sole proprietorships and partnerships where the owners simply divvy the
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46 Part I The QuickBooks System
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income or loss on their individual returns, a corporation is subject to an entity level tax. This means that a tax is imposed on the corporate entity as well as on the individual owners who are generally taxed on any dividends. This is sometimes referred to as double taxation, and its impact is signi cant. The maximum individual tax rate is 35 percent. The maximum combined individual and corporate tax rate is approximately 70 percent. (And this does not even consider the double-taxation issue with respect to state taxes!)
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