Any small business must choose a legal form of ownership.

The most common forms include the

sole proprietorship, partnership, and corporation. A large number of small enterprises start up as sole
proprietorships. These businesses are owned by one person, typically the person who is responsible for
running the business on a daily basis. The owner takes all responsibility for any of his/her liabilities or
debt obligations. The advantages of sole proprietorship are; it is easy to set up, the owner has total
authority over all company decisions, and he/she keeps all earnings. In addition, the company can be
quickly discontinued, if needed. In the meantime, the disadvantages are; the company can be difficult to
sustain. Also, the owner is directly responsible for company obligations and, finally, he/she may have
limited expertise and experience. The next legal form is a partnership in which two or more individuals
share the ownership of a single company. As the company owners, the legislation does not discriminate
between the business and the shareholders. Its advantages are; it is also easy to establish, owners may
have multiple sources of capital, risks are spread across partners, and there is only minimal state
intervention. While its disadvantages are; Partners are jointly and separately accountable for the
negligence of the other partners, income must be shared with others, and as decisions are shared,
disagreements may arise. Eventually, the partnership may have a limited life. Finally, the last common
legal form is corporation, operated by the state in which it is located, is considered by law to be a
distinct entity, distant and different from those who own it. A corporation may be taxed; it may be held
liable; it may enter into legal arrangements. Its shareholders are the owners of the corporation.
Shareholders shall elect a Board of Directors to manage important policies and decisions. The company
has its own life and does not disband as management changes. The advantages of a corporation are; the
investors have no responsibility for the debts or decisions against the corporation. Usually, owners
should only be held liable for their contribution in the company's assets. In addition, companies may
collect additional funds through the selling of bonds. A corporation may deduct the cost of benefits it
provides to officers and employees, may elect the status of S Corporation if certain requirements are
met. This election allows the company to be taxed in the same way as a partnership. Contrary to this,
the process of integration takes more time and more resources than most modes of organization.
Corporations are regulated by federal, state and certain municipal authorities, which can result in
additional paperwork to comply with the legislation. Incorporation may result in higher overall taxes.
Lastly, dividends charged to owners are not excluded from corporate taxes; this income will also be
assessed twice.