Organizational Forms – Comparing Business Types
For someone wanting to start or invest in a business, it is important to have a good understanding of the types of businesses available to them. There are several factors that determine what type of business entity is right for the individual owner or group of investors. A single entrepreneur may decide to invest in a Sole Proprietorship or a Limited Liability Company. They may also decide to invest with other entrepreneurs that share their vision in a new company by forming a General or Limited Partnership. The decision to form a business of a specific type must be dependent on several factors including tax implications, ownership and liability. The type of business that is chosen should take into account the nature of the business and the expectations of growth for the future. The following is a list of available business types, basic information about each type, as well as advantages and disadvantages of each type of business.
A sole proprietorship is a business that is unincorporated, is owned by a single proprietor, is formed easily and is relatively easy to control. It is the simplest form of business organization and is the most common form of business in the United States. The owner of a sole proprietorship is liable for all debts and actions of the company, including those of company employees. Unlike a corporation or LLC, a sole proprietorship doesn't exist as a separate entity from the owner. The owner’s assets and personal wealth are linked to the business success or failure. Operating a sole proprietorship in a high risk category can be a greater liability to the owner than if the business is formed as a corporation or a limited liability company. Most sole proprietorships are funded by small business loans or personal assets to initially finance the business.
The owner of a sole proprietorship has complete control over and decision-making...