Business Structures FIN 571 Week 2
John Owner, thank you for seeking advice on starting a business and wanting to know the disadvantages and advantages of starting a business. It is very important in researching the different types of businesses and creating a plan for success. Starting a business can be tough but also can be very rewarding. In setting up a business there are three main structures a person can start: Sole Proprietorship, Partnership or a Corporation. Each business structure has its advantages and disadvantages that I will address.
A sole Proprietorship is the lease expensive and easiest way to start a business. This type of business gives the owner total authority over all decisions made within the business. The business can either be in your personal name or a trade name you make up. The disadvantages of a Sole Proprietor are the owner is liable for everything. Every decision that is made is totally on the owner. Owning this type of business gives the owner no liability protection where the business and personal assets are not separated. So if something goes wrong and you are sued the plaintiff can go after your personal assets for reimbursement. For tax purposes, any income earned is the income the owner earns not the business. An owner of a sole Proprietorship fills out a schedule C on the 1040 tax returns. Another type of business structure is a Partnership.
There are two types of Partnerships: General and Limited. In a general partnership, there is usually a written agreement between the two or more people regarding how profits are split, their roles and their responsibilities. In a limited partnership, ownership limits the personal liabilities based on their capital investment into the business. In this type of partnership knowing your roles, having respect and trust in one another is vital and understanding the boundaries within the organization. When it comes to the partnership debts every partner is liable for their share of the partnership as well as
A sole Proprietorship is the lease expensive and easiest way to start a business. This type of business gives the owner total authority over all decisions made within the business. The business can either be in your personal name or a trade name you make up. The disadvantages of a Sole Proprietor are the owner is liable for everything. Every decision that is made is totally on the owner. Owning this type of business gives the owner no liability protection where the business and personal assets are not separated. So if something goes wrong and you are sued the plaintiff can go after your personal assets for reimbursement. For tax purposes, any income earned is the income the owner earns not the business. An owner of a sole Proprietorship fills out a schedule C on the 1040 tax returns. Another type of business structure is a Partnership.
There are two types of Partnerships: General and Limited. In a general partnership, there is usually a written agreement between the two or more people regarding how profits are split, their roles and their responsibilities. In a limited partnership, ownership limits the personal liabilities based on their capital investment into the business. In this type of partnership knowing your roles, having respect and trust in one another is vital and understanding the boundaries within the organization. When it comes to the partnership debts every partner is liable for their share of the partnership as well as
References: Parino, R., Kidwell, D.S., & Bates, T.W. (2012). Fundamentals of Corporate Finance (2nd ed.). Hoboken, NJ: John Wiley & Sons, Inc