You may work for a company or own your own, but however you do business, it’s done through some sort of business entity. If you work for someone else, you may not be all that concerned with what type of entity it is. But if you ever plan on owning your own company or running a side business even, you’ll want to be aware of the different entity options available to you. I’ll go over some of the main ones here.

The Sole Proprietorship

This is the simplest form of organization and the most prevalent. It represents a single-person ownership where the person essentially does business in his or her own name. It’s a very popular entity because there are no legal formalities involved for forming or dissolving a business. It offers simplicity of decision making (since there’s only one owner) and low organizational and operating costs. The major drawback of the sole proprietorship is that there is unlimited liability to the owner. In the event of unsettled debts or a lawsuit, the personal assets of the owner are not protected.

As a sole proprietorship, any profits (or losses) are taxed on the owners personal income tax filings. The income and deductions are reported on the Schedule C of the personal return. This makes the accounting of the business much simpler. It’s also important to note that many sole proprietors will register a DBA, or Doing Business As which allows the owner to operate under a name other than their own as well as open a business account with financial institutions.

The Partnership

This form of ownership is very similar to the sole proprietorship except that there are two or more owners. Most partnerships are formed by an agreement between the participants known as the articles of partnership. This type of entity also carries unlimited liability to the owners, however, it could present problems for owners with unequal personal wealth having to absorb the losses. A limited partnership can be utilized to get around the unlimited liability with general partners and limited partners though if you choose.

The tax situation for a partnership is also very similar to the sole proprietorship. Any profits and losses are passed through to the individuals personal tax returns. This again helps to keep the accounting of income and expenses relatively simple.

The Limited Liability Company (LLC)

This type of entity is a legal form of business that offers limited liability to its owners. This means that the owners liability is limited to the amount of their initial and subsequent investments in the company. It’s similar to a corporation, but is usually utilized by smaller companies with a limited number of owners. A sole proprietor my choose to eventually form an LLC, but it would still be treated as a sole proprietorship for income tax reporting purposes. An LLC with multiple owners/members, however, may choose to be treated as a partnership, C corporation, or S corporation for federal taxing purposes.

The Corporation

A corporation is the more complicated of the various business structures. It is a separate legal entity, or Juristic Person. Aside from providing limited liability to the owners, it also has other legal rights and obligations. For tax purposes, this type of entity files its own separate return. The distributions to the shareholders can then also be taxed on personal returns (think of dividends) making it possible for what’s typically called double taxation.

Under certain circumstances, a corporation may elect to be taxed under Sub-chapter S of Chapter 1 of the Internal Revenue Code. These are what are referred to as S corporations or an S-corp. In this instance, income or losses are passed through to the shareholders and taxed only once on personal returns. Certain qualifications, however, must be met for this status.

This isn’t intended to be an exhaustive and detailed list, but hopefully it has been helpful in explaining some of the main differences between these various business entities.

1. Fox Business has an article about raising financially savvy kids. It’s from back in 2005, but it still applies today if not more than back then. Regardless of our thoughts on the issue, financial concepts are not taught in our current educational system. Most of what young people learn about finances come from the example they see in their family. It may behoove us to ask ourselves what we’re teaching those around us about money management.

2. Fiscal Musings Throwback: Back in May of last year I asked the question, Are You an Investor or Speculator? At that time, real estate was still booming and the stock market was experiencing fantastic gains. Going by the definition I provided in this post, I would submit that true investors are still making money in the current market while the great number of speculators are losing their shirts and worrying.

3. Advanced Personal Finance has a great post up about the reality of negative real interest rates. I especially like the fact that it was looked at from multiple points of view for people in different situations.

I’m not one that feels the need to go on a vacation very often, but I’ve met many people who do. Mostly I attribute it to the way one was raised or just to social pressure. Even though I don’t really see the need to take a vacation very often, they can be a great way to get away and connect with friends and family. If you’re like me and don’t put too much thought into this type of thing, you may need some help with vacation ideas.

My wife and I actually took a trip and found some things to do in Chicago. We drove up there from where we live in St. Louis and went to see one of my favorite artists in concert at the House of Blues. While we were there, we also toured various parts of the city since it’s quite big and there is so much to see. The Chicago style pizza is also phenomenal and I highly recommend it.

If you are looking for some ideas for your next vacation, whenever it might be, once place to look would be Trusted Tours & Attractions, and you could even win a free Canon PowerShot digital camera by signing up for their newsletter. You can find a lot of fun and entertaining things to do while you’re in the city of your choice, and you can plan them all ahead of time so you’re not wondering what you’re going to do once you get there. So keep them in mind the next time you’re thinking of taking a vacation.

I’ve got a guest post up over at The Digerati Life about how I got interested in personal finance and business. I’d also like to welcome all the reader from over there, and I hope you find this site informative as well. Check out the archives and feel free to subscribe to the feed so you don’t miss anything else.

With so many people posting about Valentine’s Day yesterday, I figured I would post about it after the fact. Instead of writing about what I was going to do, I can write about what I actually did and not have to write two posts about the day. As you can probably imagine, things were kept pretty frugal (what else would you expect from Fiscal Musings). I figured that the best gift I could give would be my time and complete un-distracted attention. If you think about it, someone having an affair at work can just as easily buy some chocolates and flowers for his wife at home. So here’s how it went down.

I tried my best to leave work earlier than usual and be home by four o’clock. I was pretty close, but didn’t get home till about fifteen after (traffic wasn’t really cooperating). Once I got home, there wasn’t a real big hoopla, but we were able to just spend some time talking and hanging out together. As for dinner, we were originally going to make this curry dish that we had been saving, but seeing as how we were both pretty tired, we decided to fore-go having to make something and just went out and picked something up instead.

So this was our Valentine’s Day dinner. It was quick and easy and neither one of us had to worry about cooking anything. We also wanted to make sure that we had plenty of time to watch the movie that we picked up. My wife wanted to watch the movie, No Reservations, that just came out on video so we rented it from Redbox with a coupon code so it was free.

All in all, it was a nice evening that we were able to spend together, and in my mind that’s really what counts. So what are your thoughts about Valentine’s Day? What did you end up doing?

More and more I hear about problems with identity theft. There are so many different ways that you could have your identity stolen that I’m actually surprised it doesn’t happen more often than it does. You’ve probably heard of viruses and malware that can affect your computer, as well as seen different phishing scams. I know I’ve gotten plenty of emails pretending to be from Bank of America, PayPal, or some other legitimate institution.

In this day and age, it may be wise to enlist an identity theft protection agency on your behalf. And that’s exactly the service that life lock provides. They take the necessary steps for you to protect your identity. In fact, their front page proudly displays the social security number of the company’s CEO (I assume, since it’s not directly said). Their service also only costs $10 per month. If you’re concerned about this issue, you should check out their site and read up more about it.

I recently received a comment/question from a reader regarding my decision making and thoughts about my future MBA. This post addresses the questions. Here is the comment:

For those of you who don’t know, I took the GMAT back in August of last year because I wanted to get MBA. And since my employer would pretty much pay for it, I figured it would be a good time. Long story short, I ended up getting a 750 on the test (out of a possible 800), which is considered a really good score, and decided to rethink my options. Originally I was going to take a part-time program and have my employer pay for everything, but I decided to put out a few applications to full-time programs since that was what I really wanted to do in the back of mind all along. The high score just gave me a mental push because I knew that I had a great chance of getting in most places.

Why An MBA and Why Full-Time

If you’ve read my recently updated About page, you’ll know that I’m currently an Electrical Engineer. However, I have a strong interest in business and most things financial, as evidenced by this blog. I’ve known for a while that I don’t want to be a career engineer and would like to transition into more of a business role, so now is as good a time as any to get the ball rolling.

As far as my decision to attend a full-time program versus a part-time, there were a couple of factors that went into it. First of all was the cost of the program. Part-time would have been free because my company would have picked up the tab. I would obviously have to shoulder the cost of a full-time program since the company wouldn’t back me in this case. On the other hand, the part-time degree would most probably have made me an engineer with a supporting business degree. Participating in a full-time program will make the MBA my functional degree supported by an analytical/technical background. The main difference for me was choosing which degree I wanted to be the functional one in the forefront. As far as the costs were concerned, I was hoping the high GMAT score would help with some scholarship money.

Choosing The Schools

Once I decided to apply to full-time programs, I had to pick which ones I was interested in. For a couple of days I considered the likes of Harvard, Stanford or MIT, but decided against them for the same reasons I chose the other schools. Even though many will tell you that you can get a job anywhere in the country once you graduate, most of a schools placement is relatively close to their geographic region. I didn’t want to be in the Northeast or the West Coast and this ruled out a lot of great schools. The cost of living was also a big consideration. Looking over different schools’ data you have to realize that an average salary after graduation of $110K in the Northeast from Harvard may not be as attractive as $95K in the Southwest where the cost of living is significantly lower.

I ultimately chose three different schools which were the University of Texas (being that I’m from Texas it was almost a given), Arizona State University, and Ohio State University (yes I left “the” off intentionally). Ohio State doesn’t really fit the mold of the Southwest, but it’s a small, intimate program that’s ranked well and somewhat in the Midwest where I am currently. I applied to all of these schools and then just waited for the acceptance letters and financial aid offers.

Making The Final Decision

I was accepted at all three of my choices, so the decision basically came down to the program offerings and the financial assistance. Arizona State got back to me first with their offer, and the tuition costs would basically be covered for me through a tuition reduction and a cash award scholarship. The Ohio State offer was similar except it would have cost me about eight grand per year. Texas took the longest to get back to me (showing their size and slow processes) and it would have cost me about $18,000 per year.

Looking at all of these different offers, I finally made the decision to go to Arizona State where I’ll be starting in the fall. The program is pretty small as far as entering class size which means more personalized attention that was very evident through the application process (in comparison with Texas). Aside from their overall program ranking, they’re ranked third in the nation for Supply Chain. I could also easily see myself enjoying life in Arizona since it won’t be cold and I’ll be in the Southwest.

Hopefully this has shed some light on my reasoning for getting an MBA and where. As always, if you have any other questions about this or anything else, let me know in the comments or via email.