FORMS OF BUSINESS OWNERSHIPAlexander Sanchez-Reyes

Sole Proprietorship

A sole proprietorship is a business entity owned and managed by one person.

Advantages of sole proprietorships include: Having little government regulations, easy management, complete control over business decisions, and the business is not taxed separately from the owner.

Disadvantages include: The owner has unlimited liability, meaning that both personal and business assets of the owner are subject to claims of creditors.

Advantages of Sole Proprietorship

Sole proprietorships have little government regulations

They are easy to manage, and owner has complete control over business decisions.

The business is not taxed separately from the owner (no double taxation).

Startup costs for a sole proprietorship are minimal.

Disadvantages of Sole Proprietorship

The owner has unlimited liability, meaning that both personal and business assets of the owner are subject to claims of creditors.

Sole proprietorships usually terminate when the owner becomes disabled, retires, or dies.

It is difficult to raise capital in a sole proprietorship

Partnership

A partnership is a business with more than one owner that has not filed papers to become a corporation or a limited liability company (LLC)

It is also the simplest and least expensive co-owned business to create and maintain.

Advantages of Partnerships

No paperwork is needed to establish an ordinary partnership. A simple agreement will suffice.

Startup costs are generally shared making it financially easier on the partners.

Because a partnership is not a separate tax entity from its owners, the business profits are not taxed. Each owner is taxed for their share of profits on their individual income tax return.

Disadvantages for Partnerships

When a partner wants to leave the company, the partnership usually dissolves. The partners must fulfill remaining business obligations, pay off all debts, and divide assets and profits among themselves

Partners must come to a consensus when making business decisions. Some partners may become difficult to work with.

Joint Venture Partnerships

Joint venture partnerships combine the resources and skills of separate companies for a complex project.

Joint venture partnerships are not permanent.

Corporations

A corporation is a legal entity or structure owned by one or more shareholders.

S Corporations which are governed by sub chapter s of internal revenue code allow earnings and taxes to be treated at the individual owner’s level. – no double taxation

Advantages of Corporations

A corporation is considered a separate entity therefore shareholders have limited liability that keep their personal assets risk free from satisfying a corporation’s debts.

Built-in stock structures of corporations make it attractive to investors and talented employees.

Corporations will last longer. Usually until shareholders decide to dissolve the corporation or if it merges with another business.

Disadvantages of Corporations

Proper corporate formalities that must be followed make it a tedious process to receive the benefits of being a corporation.

Corporations are subject to more government regulations.

Double taxation occurs in corporations. They are taxed once for profits and again when dividends are paid to shareholders.

Franchise

A form of business where a person purchases or leases the right to sell a particular product.

Advantages: Individuals do not have to worry about expensive advertising expenses and the reputation of the company. Training and support to run a franchise is also available.

Disadvantages: Buying into a franchise can be expensive with initial costs of $50,000 or more. There is limited growth potential and many government regulations.

LLC (limited liability company)

A limited liability company is a form of business that avoids double taxation.

They provide management flexibility and the benefit of pass-through taxation.

Nonprofit Corporations

Nonprofit corporations are created for charitable or educational purposes.

Earnings from these type of corporations are used for expenses and expansionary purposes.

Cooperative

Cooperatives are created when two or more people or firms come together to share resources.

They are owned by the people who use them and invest in them.

Cooperatives are not always creates for monetary purposes. Members ensure that the cooperative business provides quality products and services at minimal costs.