Legal Form of Business

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Legal Forms of Business
Mike Martin
January 9, 2012
Carmina Perez-Fowler

Legal Forms of Business
Legal forms of business include sole proprietorship, partnership, limited liability limited partnership, limited liability company, S corporation, franchise, and corporation. Each of these legal forms offers distinct benefits to business owners and investors. The decision to incorporate one legal form as opposed to another is often determined by circumstance and underlying factors. Cheeseman (2010) writes about the factors that determine selection of legal form of business. According to Cheeseman " The selection depends on many factors, including the ease and cost of formation, the capital requirements of the business, the flexibility of management decisions, government restrictions, personal liability, tax considerations, and the like" (p. 529). This essay will examine each legal form and develop scenarios to illustrate the most advantageous use of each particular legal form. Sole Proprietorship

The sole proprietorship is the simplest legal form of business. This business organization consists of a person who not only owns the business but also is the sole representative of the business. Cheeseman (2010) states that the "the owner of the business is the business and that there is no separate legal entity" (p. 530). Principal advantages of the sole proprietorship include low cost, complete control of business operations, and ease of transferring business interest. The sole proprietor is also sole recipient of all profits. The ideal scenario for this legal form is an entrepreneurship that aims to earn a steady income but has no grand ambition to expand and become a large-scale operation. A small, family owned business such as a restaurant, hair salon or tattoo shop are good examples of ideal business scenarios for a sole proprietorship. Sole proprietors assume all the financial and legal risk of the organization therefore proprietors need to be...
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