Advantages and Disadvantages of Sole

Proprietorship or Partnership vs Corporation

Businesses in America are constantly evolving, but the way they are started has not changed much
over the years. We have different business models, joint ventures, joint ventures, authorized, non-
profit, sole proprietorships, limited liabilities and corporations. Most of the corporations operating in
the country today started as sole proprietorships. On a business basis, 73% or 31 million of the
businesses operating today are sole proprietorships.

Many people start this path to reduce costs and wait for the business to succeed.

Today we are going to explore the pros and cons of changing a joint venture or joint venture into a
sole proprietorship or corporation. We know that there is one owner with sole proprietorship and
that person is solely responsible for every aspect of the business. If a mistake is made and a lawsuit
is filed, the prosecution personally follows the owner. The owner's business and personal assets will
be at risk. Also, with sole proprietorship you have no continuity. This means that if the owner dies or
is unable to continue working due to illness, the business will cease to function. Many banks and
lenders are reluctant to lend large sums of money to sole proprietors, so there is also the problem of
having enough money to run the business. The same is true for partnerships, except that the
responsibilities extend to other people.

Incorporated

We explore how to transform a business from a sole proprietorship or partnership into a

corporation.

Advantages

The most important advantage is the responsibility of the owner and / or partners. This is great
because it helps protect the personal assets of the owner and / or partners. This means that the
corporation is responsible for business loans that protect the owner and / or partner from creditors.
When the corporation is active, it helps the business to continue to exist.

The business will last until they choose to close it. According to the U.S. Small Business
Administration, sole proprietorships and / or joint ventures do not have to pay business taxes, but
instead profits and losses are passed on to individual public partners. Individual owners and / or
partners are required to file a tax deduction to report losses and profits to the Internal Revenue
Service, while the average partners include their share of profits and losses. Corporations are
required to pay state and national taxes, and shareholders are required to pay taxes on their
salaries, bonuses, and dividends. According to the SBA, the corporate tax rate is generally lower than
the personal income tax rate. The corporation operates as its own institution and this fundraising
comes with other options. The company can still borrow from banks or lending institutions, but can
raise money by selling shares. Some corporations have raised billions of dollars through basic public
offerings or I.P.O. This money can be used to expand the business or reduce debt. The transfer of
ownership is also an advantage to the corporation. In the event of the death of the owner / CEO, the
company has a board of directors and members who assist in running the business and does not rely
on one person to run it. As the company grows, it can attract better managers with specialized
training who can help the company grow.

Disadvantages
Disadvantages of setting up a corporation can be cost. You need legal assistance to set up a company
properly. Depending on the full legal requirements, the costs can range from $ 2,500 to $ 5,000 and
up. There are so many forms to submit to the Secretary of State, one that can be daunting if not
prepared. The biggest disadvantage is all the extra paperwork. Once you go public, there is no
secrecy, and shareholders and the government need a lot of detailed reports. The financial and all
other activities of the company become a public record.

For example, the Sarbanes Oxley Act of 2002 required officers and directors to sign all reports to
combat corporate accounting fraud. This made them personally responsible for the discrepancies in
the records. This is a good thing, but it generated more articles. The corporation also has the option
of imposing a double tax. The company taxes the profit and then the shareholders can also tax the
profit. The company may experience conflicts when more employees are added. The bigger the
company, the more conflicts they can have and the more expensive they can be.
There are many factors to consider when transferring from sole proprietorship to an L.L.C. or
corporation. One of the biggest questions is "When should the company take action?" To go If it
seeks to protect the owner's assets, the answer is now. If this happens at the end of the year, it is
wise to wait until the beginning of the year. Based on the tax, the owner does not have to file one
way for half the year and the other way for the other half of the year. This also incurs an
unnecessary additional cost.