Sole proprietorship: A sole proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has total and unlimited personal liability of the debts incurred by the business.

Partnership: A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

Corporation: A business corporation is a for-profit, limited liability entity that has a separate legal personality from its members. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff.

Cooperative: Often referred to as a "co-op business" or "co-op", a cooperative is a for-profit, limited liability entity that differs from a corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

sole proprietorships and partnerships have their profits taxed only once. . A partnership is essentially a sole proprietorship with more than one owner. although there are other considerations as well. as each type of entity has certain advantages and disadvantages. Additionally. The benefit of sole proprietorships and partnerships is that they are very simple to form and do not require any formalities with the state's secretary of state. LLCs combine the pass-through earning structure of a partnership or sole proprietorship with the limited liability of a corporation. The format of a business should be carefully considered before creating a business entity. as income is accrued directly to the owners rather than at the business level. Limited liability companies are also fairly easy to create. The major disadvantage of sole proprietorships and partnerships is that the owners are liable for all debts and civil actions of the company. Demand Media There are numerous legal forms of businesses that can be used when running a company. The primary considerations for determining the appropriate business structure are taxation and liability. Limited Liability Company Limited liability companies (LLCs) are fairly recent developments in the business world. The most significant downside to LLCs is that it can be difficult to transition the company to a publicly traded business if the owners wish to have an initial public offering of stock.The Advantages and Disadvantages of the Different Types of Business Entities by Leigh Richards. Sole Proprietorship and Partnership A sole proprietorship is a company owned entirely by a single individual.

like an LLC. While these stockholders have limited liability and are shielded from the debt and civil liabilities of the corporation. However. as the corporation's profits are taxed at the company level and once again at the shareholder level. combines the benefits of a partnership with those of a C corporation. C corporations spread ownership among stockholders. . If a company has more than 100 shareholders. they face double-taxation. An S corporation gives its owners limited liability and has special tax treatment that avoids double-taxation.C Corporation A C corporation is the typical business structure for very large companies. S Corporation An S corporation. it loses its S corporation status. there are rules restricting how many shareholders there may be for a company to remain an S corporation.

He does not have limited liability and therefore if the business goes bankrupt he may lose his personal assets e. Disadvantages The sole proprietor must work for long hours resulting in little time for family. There is also limited capital to inject into the business and he alone bears all the risk of the business. house and car. The risk of the business operation is also shared. There is a lack of expertise in areas of business where he is not knowledgeable which may limit its success.g. Disadvantages .Sole Traders Advantages Benefits of operating alone are: all profits are taken by the owner. Partnership Advantages Since more than one person is involved. more capital can be raised to inject into the business. There is more expertise and work load is shared. Consultations are not necessary for decision making and the legal requirements for start-up is very simple as the proprietor only needs to submit the registration documents for the business.

For the private limited liability company. shareholders in public liability companies are not restricted to sell their shares to whomever they wish to. Public Limited Liability Company Advantages . However. Decision making may be very slow if partners are not in agreement. This type of business is assured continuity of existence as it has several members. This firm can access capital for expansion by selling shares. Disadvantage The disadvantage is that they are not easy to start due to the number of legal procedures required. There are high risks for partners who do not have limited liability.All partners will be affected by the action of each partner since each person represents the business. Private Limited Liability Company Advantage A main advantage of limited liability companies is that their shareholders enjoy limited liability. shares are not easily transferable as other members must agree to have persons join the company. Unlike the sole trading business that comes to an end if the owner dies or is very ill. This business also has privacy as its balance sheet does not have to be published.

This type of business is assured continuity of existence as it has several members. added advantages are that shares are easily transferrable as they may be sold to anyone on the stock market and it provides a means of investment for shareholders who buy shares at low prices and sell when stock prices rise. Disadvantage The disadvantage however.A main advantage of limited liability companies is that their shareholders enjoy limited liability. Unlike the sole trading business that comes to an end if the owner dies or is very ill. . are that they are not easy to start due to the number of legal procedures required and that the large size of these businesses tend to be difficult to manage. This firm can access capital for expansion by selling shares. Note that these advantages are similar to the private limited company. However.

legal issues. 4. financial concerns. Any income is declared as the partners’ personal income tax returns. It has tax advantage: any income is declared as the owner’s personal income tax return. Advantages of a partnership 1. therefore there are no corporate income taxes. limited partnership (in additional at least one general partner. and personal concerns. Self contractor is one example of a sole proprietorship. Advantages of a sole proprietorship 1. The owner is making all the decisions and controlling the whole operations. therefore there are no corporate income taxes. It is relatively easy to form but considerable amount of time should be invested in developing the partnership agreement. The owner is responsible for all the obligations of the business. liability and profit or loss according to their agreement). and limited liability partnership (all of the partners have limited liability of the business debts.Advantages and Disadvantages of Business Organization Types It is important to understand the different types of business organizations types such as a sole proprietorship. Disadvantages of a sole proprietorship 1. 2. A Sole Proprietorship is a business with one owner who operates the business on his or her own or employ employees. 2. There are three classification of partnerships: general partnership (partner divide responsibility. however it is dangerous as the sole proprietor has total and unlimited liability. 2. It is subject to fewer regulations. It is the simplest and the most numerous form of business organization in the United States. partnership. It is difficult to raise capital: it can only use the owner’s personal saving and consumer loans. 3. It is easier to raise capital compared to a sole proprietorship as there are more than one investor. 5. and corporation. there are one or more limited partner who have limited liability to the extent of their investment). it has no general partners). Partners share the unlimited liabilities of the business and operate the business together. A Partnership is a business with two or more individuals owns and manages the business. Simplest and least expensive form of business to establish and to dissolve. 3. A business’s organizational structure influences issues. . All profit flows directly to the owner.

2. pay taxes and be sued. A corporation is a limited liability entity doing business owned by multiple shareholders and is overseen by a board of directors elected by the shareholders. Employees may be motivated and attracted to the business by the inventive to become a partner Disadvantages of a partnership 1. 2. so this part of income is taxed twice as the shareholders must declare dividends as their personal income and pay personal income taxes too. Partners must make decision together therefore disputes or conflicts may occur. 2.4. Shareholders can easily transfer the ownership by selling their stock. It is restricted by more regulations. enter into contracts. Individual owner’ liability is limited to the value of stock they are holding in the corporation. Profit of the business is taxed by the corporate tax rate. Disadvantages of a corporation 1. more closely monitored by governmental agencies and are more costly to incorporate than other forms of the organizations. It can raise additional funds through the sale of stock. Partners are jointly responsible for all the obligations of the business. Dividends paid to shareholders are not deductible from corporate income. 3. Advantages of a corporation 1. . The shareholders gain from the profit through dividend or appreciation of the stocks but are not responsible for the company’s debts. It may eventually lead to dissolving the partnership. It is distinct from its owners and can borrow money.

the personal liability you face and your ability to borrow money. The answer to the question "What structure makes the most sense?" depends on the individual circumstances of each business owner.What are the common forms of businesses. The form you use depends on how your business is organized. Sole Proprietorship A sole proprietorship is the most common form of business organization. the amount of paperwork your business is required to do. Each business owner must assess their own needs. As a sole proprietor you can operate any kind of business as long as you are the only owner. One form is not necessarily better than any other. This includes operating a: . One of your first decisions as a business owner is what form of business you choose. federal tax law controls how your business is taxed. Here is a brief look at the various business forms. This decision is very important because it can affect how much you pay in taxes. But the business owner is also personally liable for all financial obligations and debts of the business. Business formation is controlled by the law of the state where your business is organized. The most common forms of businesses are:      Sole Proprietorships Partnerships Corporations Limited Liability Companies (LLC) Subchapter S Corporations (S Corporations) While state law controls the formation of your business. It's easy to form and offers complete control to the owner. It can be full-time or part-time work. All businesses must file an annual return. and what structure makes the most sense for your new small business? Before you consult with a tax advisor or consultant you may want to do some research yourself.

the corporation can be taxed and can be held legally liable for its actions. you are generally not personally liable for the debts of the . Corporation A corporate structure is more complex than other business structures. In addition. Your net business income or loss is combined with your other income (other income could be your salary if you also work for someone else.000 or more when you file your return. Sole proprietors do not have taxes withheld from their business income so you may need to make quarterly estimated tax payments. Use Form 1040-ES. labor or skill. Partners must report their share of partnership income even if a distribution is not made.    Shop or retail trade business Large company with employees Home-based business One-person consulting firm Every sole proprietor is required to keep sufficient records to comply with federal tax requirements regarding business records. The corporation becomes an entity that handles the responsibilities of the business. It requires complying with more regulations and tax requirements. they generally need to make quarterly estimated tax payments if they expect to make a profit. to figure and pay your estimated tax. Like sole proprietors. Each person contributes money. Like a person. Estimated Tax for Individuals. If you organize your business as a corporation. Partnership A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each partner reports his share of the partnership net profit or loss on his personal tax return. and expects to share in the profits and losses of the business. or your investments) and deductions and taxed at individual rates on your personal tax return. any earnings distributed to shareholders in the form of dividends are taxed at the individual tax rates on their personal annual tax returns. Corporations are formed under the laws of each state and are subject to corporate income tax at the federal and state level. Partners are not employees of the partnership and so taxes are not withheld from any distributions. You generally have to make estimated tax payments if you expect to owe tax of $1. property.

LLCs are popular because. owners have limited personal liability for the debts and actions of the LLC. Generally. those having only one owner.) Limited Liability Company A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. corporations. other LLCs and foreign entities. providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Other features of LLCs are more like a partnership. Since most states do not restrict ownership. Subchapter S Corporation The Subchapter S Corporation is a variation of the standard corporation. (Exceptions may exist under state law. similar to a corporation. The S corporation allows income or losses to be passed through to individual tax returns. similar to a partnership.corporation. an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. members may include individuals. . Most states also permit "single member" LLCs.

if any. So. and inexpensively. and corporation. and professional corporation. however. such as Nancy's Nail Salon. limited liability company (LLC). even if the business uses a fictitious name.  Sole proprietorships carry little. partnerships. The owner of a sole proprietorship typically signs contracts in his or her own name. and the sole proprietorship is ready for business. some business forms have subclasses. Advantages of the Sole Proprietorship  Owners can establish a sole proprietorship instantly. the owner will have to pay the business debts with his or her own money. is that the owner of a sole proprietorship remains personally liable for all the business's debts. and nominal cost. ongoing formalities. The Sole Proprietorship The sole proprietorship is the simplest business form under which one can operate a business. and taxation. A distinct disadvantage. The sole proprietorship is a popular business form due to its simplicity. ease of setup. The fictitious name is simply a trade name--it does not create a legal entity separate from the sole proprietor owner. The sole proprietorship is not a legal entity.The Basics of Business Structure Sole proprietorships. LLCs and corporations--learn the differences and which one fits your company best. Each form has advantages and disadvantages in complexity. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. such as the C corporation. Learn how to select. Sole proprietorships can bring lawsuits (and can be sued) using the name of the sole proprietor owner. ease of setup. Choosing the right business form requires a delicate balancing of competing considerations. Many businesses begin as sole proprietorships and graduate to more complex business forms as the business develops. S corporation. if a sole proprietor business runs into financial trouble. plan. liability protection. Also. and organize the business form that is a perfect fit for you. . easily. because the sole proprietorship has no separate identity under the law. The most common forms of business enterprises in use in the United States are the sole proprietorship. The sole proprietor owner will typically have customers write checks in the owner's name. operating complexity. If such suits are successful. general partnership. cost. creditors can bring lawsuits against the business owner. It simply refers to a natural person who owns the business and is personally responsible for its debts. periodic reporting requirements. A sole proprietor need only register his or her name and secure local licenses.

will seek to have their partnership arrangement memorialized in a partnership agreement.  Owners may freely mix business and personal assets. and liabilities of the business.  Partnerships do not require annual meetings and require few ongoing formalities. Partnerships can be formed with a handshake--and often they are.  Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value. Don't operate a partnership without a written partnership agreement. depending on the complexity of the partnership arrangement and the experience and location of the attorney. Disadvantages of the Sole Proprietorship  Owners are subject to unlimited personal liability for the debts. Advantages of the Partnership  Owners can start partnerships relatively easily and inexpensively.  Partnerships offer favorable taxation to most smaller businesses. In limited partnerships and limited liability partnerships. however. whether or not the persons intend to form a partnership.A sole proprietor need not pay unemployment tax on himself or herself (although he or she must pay unemployment tax on employees). partnerships are often formed accidentally through oral agreements.  The Partnership A partnership is a business form created automatically when two or more persons engage in a business enterprise for profit.  Owners cannot raise capital by selling an interest in the business. a partnership can even offer a degree of liability protection. losses. Responsible partners. A partnership is formed whenever two or more persons engage jointly in business activity to pursue profit. Because of its informality and ease of formation. preferably with the assistance of an attorney. Consider the following language from the Uniform Partnership Act: "The association of two or more persons to carry on as co-owners of a business for profit forms a partnership. the partnership is the most likely business form to result in disputes and lawsuits between owners--oral partnership arrangements are usually the reason." A partnership--in its various forms--offers its multiple owners flexibility and relative simplicity of organization and operation. The cost to have an attorney draft a partnership agreement can vary between $500 and $2.  Partnerships often do not have to pay minimum taxes that are required of LLCs and corporations.000. Because partnerships can be formed so easily. Disadvantages of the Partnership .

Another example would be when all the owners of the partnership were already liabilityprotected entities. I would almost never recommend a partnership to clients.  . losses.  Poorly organized partnerships and oral partnerships can lead to disputes among owners. for example. and liabilities of the business (except in the cases of limited partnerships and limited liability partnerships). as is the case with law partnerships.  Individual partners bear responsibility for the actions of other partners. In my law practice. such as when two LLCs come together as owners of a partnership. The lack of liability protection is simply not an acceptable risk that I could ever recommend that a business owner undertake.All owners are subject to unlimited personal liability for the debts. The rare occasion where I recommended a partnership was when a corporation or LLC was legally unavailable to the owners.