Proprietorships the Benefits and Drawbacks

¶ … 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)

Partnerships

A partnership is when there is a written agreement among different individuals about: their roles / responsibilities and percentage ownership of the business they are entitled to. The benefits of these kinds of organizations include: they are easy to establish, there is shared financial responsibilities and new partners can easily be brought into the firm. The various drawbacks for this type of entity includes: partners are sharing in the profits, everyone is responsible for their percentage of the organization's liabilities and there could be disagreements among the owners. These elements are important, because they are showing how these kinds of entities are ideal for a group of individuals that will be directly involved in the business. As, they want to maintain operational control; but they want some kind of: division of labor, responsibilities and financial contributions. ("Incorporation") (Hernandez) This is similar to a proprietorship in that it is easy to establish and there are less regulations. However, partnerships are different, because there is stated contract that defines the percentage of ownership and liabilities for these kinds of organizations.

Corporations