Business Structures

Business Structures

Sherise Harris

FIN/571

December 22, 2014

Professor Danica Djordjevich

  Introduction    

      There are three types of business structures that are often utilized by businesses and they are sole proprietorship, partnerships and corporations. This purpose of this paper is to; define each business structure and specify the advantages and disadvantages of each of these business structures.

Sole Proprietorship

      Sole proprietorship is the simplest form, the most common type of business, and most small businesses in the Unites States are sole proprietorship. There are advantages and disadvantages of sole proprietorship. The advantages are that the owner has control of the decision making of the company. The owner also has the discretion to sale or transfer, have to pay no corporate tax payments, there are hardly any legal costs to start a sole proprietorship and there are few strict business requirements. The disadvantages are that a sole proprietor can be held personally liable for debts and misfortune of the business, all responsibilities of the business is the owner’s responsibility and most investors usually will not invest in sole proprietorship.

Partnerships

      A partnership is when two or more owners join together in hopes of making a profit as a team.  There are two types of partnerships and they are general and limited partnerships. The general partnership is when two or more owners both share the responsibilities of the business and agrees to be responsible for each other’s actions. The limited partnership is limited partners who are only involved within the company by the capital that they have invested and are only liable for the capital that which they have invested.

      There advantage and disadvantages of partnerships. The advantages are there are hardly any legal costs to start a partnership and there are few strict business requirements, there are tax advantages, others are willing to invest capital within the business, which in return means that there are more managers to assist in managing the business. The disadvantages are that there can be unlimited liability, grievances amongst partners, difficulty finding compromising partners willing to provide additional capital and partnership can be become binding without permission.

Corporations

     A corporation is a Limited Company and is made up of shareholders. The corporation is considered to be a legal separate entity and so its existence does not depend on the shareholders’ continued membership. Shareholders cannot be held liable for the mishaps of the corporation beyond the capital that they have invested.

     There are also advantages and disadvantages of a corporation. The advantages are but are not limited to; there is limited liability, tax advantages for shareholders, management is always available within the corporation, ownership can be transferred amongst other shareholders, capital is easy to raise, and the corporation will always be considered a legal entity. The disadvantages are; regulated very often, expensive to form, taxes can double, extensive record keeping is mandatory and managerial shareholders may be held accountable for mishaps of the corporation.