Advantages and Disadvantages

There exist three basic types of business structures. One should know the basic forms before getting into a business situation to avoid potential problems. The three basic types of business structures are as follows:

i) Sole Proprietorship:

This type of business is owned by one person who is called a proprietor. The proprietor manages the business. Some disadvantages are as follows: the proprietor assumes all risks of the business and personal assets can be taken by creditors. One major advantage of the sole proprietorship is the owner makes all the decisions.

ii) Partnership:

a) The general partnership business structure is owned by more than one person.

One or more partners may manage the business. As to disadvantages, like the sole proprietorship, partners assume the risks for the business and their assets may be taken by creditors. Additionally, partners may disagree about the best way to run the business, which could result in a conflict. An advantage of a partnership is the owners share risks and decision making.

b) There is another form of business structure in the partnership arena, which is

called the Limited Liability Partnership (LLP). This form is different from the general partnership structure. Liability is limited to the assets of the partnership in this business form.

iii) Corporation:

a) The general corporation is owned by stockholders (or shareholders).

Usually a corporation may have many owners and they usually employ professional managers. The owner’s risk is usually limited to their personal investments and they often have very little influence on the business decisions. However, the corporation veil may be pierce if the corporation is negligent in its operation.

b) The next corporate form is the Limited Liability Corporation (LLC). This

structure is different for the general corporate form. As the name implies, liability is limited in this form as in relation to the general corporate structure.

c) Finally, there exists the non-profit corporation. These types of corporations

Posted on

Business Structures

The type of legal structure you choose for your company is probably the most important of all the decisions you make when starting a business. Furthermore, it is also important when we talk about computing your taxes.

Not only will this decision have a huge influence on your tax payments, it will also affect the amount of paperwork your business has to do, your ability to earn profit and the personal liability you face.

As each business form comes with different tax consequences, you have to make your choice smartly. You should choose the structure that most closely matches your company’s needs.

The following are the type of business structures:

Sole Proprietorship

Sole proprietorship is the simplest structure which only involves just one individual who owns, at the same time operates the entire business. For those who want to work alone, this structure can be the best for you.

You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner of your business, this status automatically comes.

Advantages of Sole Proprietorship:

a. Easy an inexpensive to form – with this type of business structure, costs is minimal, with legal costs limited to obtaining the needed permits and license.

b. Total Control – you have complete control over your business decisions because you are the sole owner. You don’t have to consult with anyone else when you need to make decisions or changes.

c. Easy Tax Preparation – your tax reporting requirements are easy to fulfil because there is no legal separation between you and your business. With sole proprietorship, you can get the lowest tax rate of all the business structures.

Disadvantages of Sole Proprietorship:

a. Unlimited personal liability – you can be personally liable for the liabilities and obligations of your company because there is no legal separation between the two parties.

b. Hard to raise capital – banks and other lending institution are hesitant to lend to a sole proprietor because they are perceived to have lack of credibility when it comes to repayment of the business fails.

Posted on