There are three major forms of business sole proprietorship, partnership and corporation.

Sole Proprietorship – the most common form, a business owned or managed by one person.
Advantages:

  • ease of starting: usually need a permit or license
  • being your own boss
  • pride of ownership
  • leaving a legacy
  • retention of company profits
  • no special taxes

Disadvantages:

  • liability: the risk of personal loss
  • financial resources: what money do you bring to the business
  • management difficulties
  • time commitment
  • limited growth

Partnership – two or more people legally agree to become co-owners of a business. There are three main types of partnerships, general, limited and master limited.

  • General: all owners share in operating the business and assuming all liability and debt.
  • Limited: an owner who is really only an investor an has no management responsibility or liability.
  • Master Limited: much like a corporation, traded on the stock exchange but avoids the corporate income tax.

Corporation – a legal identity that can act an  have liability apart from its owners. Many people assume that a corporation must be a large company, this way of thinking is false.

Advantages:

  • limited liability
  • raise more money from investors
  • perpetual life: due to the fact they are a separate entity from their owners
  • ease of ownership change
  • separation of ownership and management: able to raise money from investors and stockholders without getting them involved with management.

Disadvantages:

  • initial cost
  • extensive paperwork
  • double taxation: corporate income tax is taxed twice
  • two tax returns: an individual who incorporates must file both a corporate tax return and an individual tax return.
  • difficulty of termination
  • possible conflict with stake holders

 

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