Choosing a Legal Form of Business

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CHOOSING A LEGAL FORM OF BUSINESS

Choosing a Legal Form of Business

Dannie L Holmes

CHOOSING A LEGAL FORM OF BUSINESS

Abstract

Many of us probably have the thought of becoming an entrepreneur. With this thought comes many questions and you must have a plan. Let us say that you have an idea for a new kind of home appliance. You are convinced that this new technology idea would be applicable in a wide range of other products. With this idea in mind you have a few issues. You have little financial skills and no management skills. You know nothing about manufacturing other than that it costs lots of money to set up a plant. Also, your net worth is not very high so you have no idea if you will be able to fund this start-up. So you must look at every aspect before making a decision on what would be the best business type, short term and long term.

CHOOSING A LEGAL FORM OF BUSINESS

Discussion

Starting a new business in either type, (sole proprietorship, partnership, and corporation) each have its ups and downs. All entrepreneurs must decide which form of legal ownership best suits their goals.

Take a look at sole proprietorship. This type of business is owned and usually operated by one person. That one person is also responsible for all of its debts. It has a low start-up cost but its hard to borrow money to start up or expand.

Now let us move on to partnerships. This is a business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts. General partnerships have the ability to grow by adding new talent and money. They also find it relatively easy to borrow money and can invite new partners to invest. Partnerships also have disadvantages like unlimited liability. Each partner maybe liable for all business debts incurred by any of the partners. There is also difficulty in transferring ownership. Due to these disadvantages some have tried alternative...
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