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Darren New wrote:
>> Well, I was thinking the latter was a subset of the former.
> No. :-)
To be more specific:
A sole proprietor is one person running a business as himself. So the guy
you hire to mow your law is probably a sole proprietor. Your kid's
babysitter is a sole proprietor. Etc. You're using your same tax ID, and
you're personally responsible for whatever happens - if you run over the
neighbor's kid with the lawnmower, they'll get your house.
A partnership is when you have multiple individuals equally responsible but
no stock as such. Each partner is responsible for all the others. This is
usually how professionals (lawyers, doctors, etc) are required to work, so
that people can sue the doctor himself if his doctor's office business
amputates the wrong leg or something. E.g., lawyers aren't supposed to be
making mistakes, so they can't incorporate to protect themselves from their
own mistakes.
A limited partnership has two kinds of partners: general partners who run
the business and can be sued and such, and limited partners who can't have
any say in how the business is run, but still get some of the profits. Lots
of times investors will set up one of these, let the nerds be the general
partners, but take most of the resulting money.
A corporation is a separate legal entity with stocks. If the corporation
does something wrong, you can sue the corporation but not someone who works
for the corporation or who bought shares in the corporation. If the officers
do something wrong corporation-wise, they can get sued (like, if they
intentionally use the corporation to commit fraud), but for most mistakes,
you're protected. (To what extent depends on the state. In nevada, it's
like 99.999% of the corporations protect the shareholders. In California,
the courts let something close to 50% of the people suing a corporation also
grab the money from the shareholders. Hence the prevalence of Nevada
corporations even in other states.)
Sole proprietors pay income taxes as if they're individuals.
Partnerships pass all their money to the partners, who then have to pay the
taxes. I.e., the partnership's money "flows through" to the individual
partners in proportions, and then the partners report that and have to pay
income taxes on it.
Corporations are legally speaking "people", so they pay their own income
taxes. They're literally separate people as far as the law is concerned.
--
Darren New, San Diego CA, USA (PST)
There's no CD like OCD, there's no CD I knoooow!
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