One advantage of a partnership is that there is a simple process for partners to terminate their business. Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

In a sole proprietorship or partnership business, the owners of the business are personally liable for the debts incurred by the business except in the case of limited partners. Thus, sole proprietors and general partners are likely to have their personal assets included in the settlement of the business debts.

When you operate your business as a sole proprietor, you and the business are the same legal entity. You own the business by virtue of operating it because you make all the decisions. A partnership works the same way except there is more than one owner. Corporations are legal entities that are separate from the owner.

A sole proprietorship is a business that is run by a single individual who makes all the decisions, although the proprietor may engage employees. The sole proprietor has total control and full decision-making power over policies, profits and capital investment. It is easy to close down the business.

One of the functional advantages of sole proprietorships is that they are easier to set up than other business entities. A person becomes a sole proprietor simply by running a business. Another functional advantage of a sole proprietorship is that the owner maintains 100% control and ownership of the business.

As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. (The IRS calls this “pass-through” taxation, because business profits pass through the business to be taxed on your personal tax return.)

In general, a sole proprietor can take money out of their business bank account at any time and use that money to pay themselves. If the business is profitable, the money in your account is considered your ownership equity and is the difference between your business assets and liabilities.

Answer: Sole proprietors are considered self-employed and are not employees of the sole proprietorship. They cannot pay themselves wages, cannot have income tax, social security tax, or Medicare tax withheld, and cannot receive a Form W-2 from the sole proprietorship.

An alternative method is to pay yourself based on your profits. The SBA reports that most small business owners limit their salaries to 50 percent of profits, Singer said.

Here are some ideas to consider:

1. Take a straight salary. It’s simple, easy to manage and account for, and is unlikely to raise any eyebrows.
2. Balance salary with dividend payments.
3. Take payment in stock or stock options.
4. Take a combination of salary plus annual bonus.
5. Create a business agreement to pay yourself later.

What’s the biggest loan I can get? The PPP limits compensation to an annualized salary of $100,000. For sole proprietors or independent contractors with no employees, the maximum possible PPP loan is therefore $20,833, and the entire amount is automatically eligible for forgiveness as owner compensation share.

How to Get Your PPP Loan Forgiven

• Name of your business: business legal name, DBA, trade name (if applicable)
• Business Tax Identification Number (TIN): Social Security number (SSN) or Employer Identification Number (EIN)
• SBA loan number.
• Your PPP loan amount.
• EIDL advance amount (if you got one)

You must have reported a net profit on your Schedule C in 2019 or 2020. If you also have employees on payroll, you do not need a net profit, but you must have payroll tax forms 940 and 941/944 for 2019 or 2020.