Types of Business Ownership

Topics: Corporation, Business law, Limited partnership Pages: 4 (1083 words) Published: October 12, 2008
The sole proprietorship is the simplest form of business organization. A sole proprietorship is a business that is owned by an individual who is solely responsible for all aspects of the business. The owner is personally responsible for all debts of the business, even in excess of the amount invested. The business and its owner are thus considered the same entity.

The advantages of a sole proprietorship include:
a. Low start up costs, as legal and filing fees are at a minimum. However, many states and cities require a filing with county clerk. b. Greatest freedom from regulation and paperwork.
c. Owner is in direct control, with no interference from other owners. d. Taxes may be lower than for regular corporations.

The disadvantages of a sole proprietorship include:
a. Unlimited liability. The proprietor is responsible for full amount of business debts no matter how incurred, which means that his personal property may be taken to cover debts of the business. This of course is a significant disadvantage. b. Unstable business life, since the sole owner’s death would terminate the business. c. Difficulty in raising capital and in obtaining long-term financing, because an ownership interest in the business cannot readily be sold.

A partnership is a legal entity that is jointly owned by two or more individuals. As with a sole proprietorship, the owners are personally liable for all debts of the firm unless a special type of partnership, the limited partnership is set up. Limited partnerships are complex legal structures, and one partner must retain unlimited liability for the debts of the firm. Even partnership agreements for regular partner ships can be quite complex.

The advantages of a partnership include:
a. Low start up costs, usually with fewer filing fees and franchise taxes. b. A broader management base than a sole proprietorship, and a more flexible management structure than a corporation. c. Possible tax advantages, since it avoids the...
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