Advantages and characteristics of sole proprietorships, partnerships, and limited liability companies

Legal Forms of Business

There are different business forms that exist depending with the legal attributes that govern them. These business forms have their advantages making them preferred to others in different scenarios. The paper discuses different forms business describing a scenario where preference of these business forms arises.

Sole Proprietorship

This is the simplest and cheapest form of business. Sole proprietorships have unlimited liability since the owner is responsible for all debts accruing to the business (Cheeseman, 2010). In this instance, as much as the profits are shared by the owner alone personal assets of the owner can be used to pay the debt owed. The preference for coming up with a sole proprietorship business is seen in the process of decision making, rising of capital and legal requirements such as registrations and reporting. Considering that an individual wishes to open and run a business, the legal requirements will include paying the license associated with the business running and registering the business name. The profits of the business need not be reported separately from those of the individual thus making operation cost lower. Formation of a sole proprietorship requires little capital to start and, additions or reduction to capital can be done with no further legal requirements.

Limited liability partnership

A limited liability partnership is formed by partners whose main aim is to raise capital. The management of the business is given to general partners or appointed managers while, the limited partners are concerned only with the capital investments (Cheeseman, 2010). The preference of this form of business comes from the fact that the partners' liability is only limited to the amount of capital contributed. Personal assets of the limited partners cannot be used to pay off debts owed to the firm. Further, the running of the business is not the responsibility of the limited partners. This reduces the likelihood of conflict in management and personal interests.

Limited Liability Company

The limited liability company provides for the owners protection from action of the company partners as well as those of the company. The company requires more legal documentation compare to those for sole proprietorship and partnership (Cheeseman, 2010). In the case for lawyers and, doctors limited liability company is preferred since the business owners are protected from individual actions of other owners. For example, consider a doctor who is an owner of a limited company and, is facing legal action for malpractice. The owners and the business will not be held liable to pay damages accruing to the doctor following his/her actions. The limited liability features of a limited liability company work to provide operational flexibility and tax efficiency for partners (Cheeseman, 2010).

S-Corporation

S-Corporation is a Limited liability form a company whose preference emanate from tax reporting procedures. S-Corporation profits are passed over to the owners and, the owners pay tax. This ensures that there is no double payment of tax by the owners (Cheeseman, 2010). The S-Corporation is also allowed to carry losses backwards or forward to offset prior or future profits. This aspect is the case where the business is operating in a highly challenging business environment. It facilitates the business owners to shield themselves from high risk in losses and high taxes.

Franchise

A franchise is a where a single brand name is shared by many different owners. The form of business comes about as a result of the parent company creating a legal avenue for private entrepreneurs to use its trademark by paying royalties and initial fees (Cheeseman, 2010). This form of business is advantageous since the preexisting trademark reduces cost of inventing a product or service and marketing it in the market. The cost of coming up with a product or service and branding it in the market is high and, act as a restriction for immediate growth especially so when a market has a high number of competitors. A franchise form of business preference is because it offers an opportunity to ride on the existing branding and advertisements and also training offered to staff.

Corporate Form

A Corporate form of business comprised of many owners whose liability is limited to the amount contributed as capital. The owners of this corporation are not engaged in management and their individual actions cannot be transferred to affect the operation of the company. The corporation has the advantage in ease of raising capital and its existence can transcend past the original owners (Cheeseman, 2010). This form of business ownership is preferred where high volumes of capital investments are required. The operational efficiency of the corporation is dependent upon professional management whose interests are likely not to interfere with the corporation. The owners of the corporation can easily opt out of the investment by selling their share capital, as opposed to other form of business.