The legal form of a business an entrepreneur chooses will affect the business's general operation in terms of ownership, profit sharing, and legal requirements for registration. Therefore, the business structure must be selected with careful consideration of the features of various forms and the owner's preferences. Some common forms include sole proprietorships, partnerships, and companies ("Small Business Administration," 2020) . Sole proprietorships are businesses that are solely started, owned, and managed by one person. Partnerships are usually created by two or more people co-own the business ("Small Business Administration," 2020) . Companies are started and owned by a group of shareholders after meeting the Company Act's registration requirements that apply to a particular country.
A sole proprietorship is the most appropriate form of business structure for Tim's Coffee Shop because it is the simplest and cheapest form of business to start. The sole proprietorship will be formed by just starting the coffee shop's operations without undergoing lengthy bureaucratic procedures. The owner will require a small amount of capital to start the business and manage it. He will enjoy sole ownership of the entity and full entitlement to profits. Thus Tim will have absolute control over the restaurant, and all the business decisions will be at his disposal (Roach,2018). Sole proprietorships also have a tax advantage over other business forms because they are taxed once as an inseparable entity from the owner ("Small Business Administration," 2020) . This tax privilege is more economical than other business forms, such as partnerships where separate taxes are charged on partner’s earnings, self-employment taxes, taxes on dividends, and income tax on the business profit.
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Despite the many merits of the sole proprietorship, they have several shortcomings too. Starting a business alone can be expensive especially if the owner has limited resources. Thus, a sole proprietor will have limited capital sources to begin his business compared to starting up as a group of shareholders. Furthermore, suppose the proprietor later wants to add another person to co-own the restaurant. In that case, he must dissolve the proprietorship first and register the entity with a new form, causing extra costs and procedures. Although the business owner enjoys the profits alone, he will also carry the burden of losses solely. Having unlimited liability also means that the creditors can access the owner's personal property to claim their debts in case the business fails to meet its obligations (Roach, 2018). Sole proprietorships also have limited access to financing because of their small sizes and low profitability rates.
Sole proprietorships have few legal requirements during registration because they are usually small entities that require a trading license and tax compliance after setup. During registration, the sole proprietor must get all licenses needed by the state and city in which the business is located. Furthermore, trade permits are required depending on the type of industry the business belongs. Tim's Coffee shop is in the food industry; hence a food service permit is required during registration. After the business setup, Tim should complete Form 1040 Schedule C, reflecting business income by listing total income and business expenditure to fulfill federal income tax compliance ("Small Business Administration," 2020) . The state's laws also require sole proprietorships to keep proper accounting records.
References
Roach, L. (2018). 1. Business structures. Law Trove . https://doi.org/10.1093/he/9780198815143.003.0001
Small Business Administration. (, 2020). Retrieved 7 November 2020, from http://www.sba.gov/
