Benefits and drawbacks of proprietorships, partnerships, and corporations

¶ … Proprietorships

The Benefits and Drawbacks of Proprietorships, Partnerships and Corporations

One of the biggest challenges that a business owner will first encounter is how to effectively establish their organization. Part of the reason for this, is because there are different needs and the various laws can be confusing about what kinds of entity to set up. To fully understand what type of organization is most appropriate for the various situations requires comparing the benefits as well as drawbacks of: proprietorships, partnerships and corporations. Together, these different elements will provide the greatest insights as to what situations are ideal for establishing these entities.

Proprietorships

A proprietorship is when someone is establishing a business by: finding a location, paying their licensing fees / taxes and being in compliance with numerous regulations (i.e. following workplace, food, health and safety guidelines). There are a number of advantages that kind of organization is offering to business owners to include: they are easy to set up, there are very little formalities, all of the income goes directly to the owner and these kinds of organizations can easily be dissolved. As far as the drawbacks are concerned, there several different disadvantages that this kind of entity is offering. A few of the most notable include: there is unlimited liabilities for the business owner, assets cannot be easily transferred and there is no protection against litigation. These different elements are important, because they are showing how these types of businesses are ideal for someone who wants direct control and will be running their operation. ("Incorporation") (Hernandez)

Corporations

A corporation is considered to be a separate legal entity. As, these kinds of organizations are: responsible for their own activities, they can take on debt, enter legal agreements, own property and they are also liable for any taxes as a business. This means that the firm will pay taxes on all income that is received. At the same time, these kinds of entities can sell common stock to increase working capital and they can have large number of owners (called the shareholders). The major benefits that this kind of organization is offering includes: there are limited liabilities, the personal assets of the owners are protected against legal claims and these types of firms can generate large amounts of capital. The different drawbacks of these kinds of businesses include: they are time consuming (because of regulations); there are higher costs, more formalities to establish and double taxation for the owners. These elements are important, because they are showing how these types of firms are ideal for companies that want to become very large. ("Incorporation") (Hernandez) This is different from proprietorships and partnerships, because there are more regulations that must be followed. As the owners will have greater legal protections, while having to go through formalized procedures to: establish and maintain these kinds of firms.