Business Types L. Jones

Sole Proprietorships, Corporations, and Partnerships:

Just what are they?

One of the first decisions any individual or group of individuals must consider when starting or joining a business, is the legal form the entity will take. In the United States, as in many other countries around the world, the three main forms of business structures are the sole proprietorship, the corporation, and the partnership. Further, each type carries with it specific advantages as well as disadvantages.

In the first business model, the business is owned and operated by the individual. This means that, in effect, the individual in question is the "sole" owner and operator of the business. There are several advantages to this structure.

First, sole proprietorships are easy to form. In the sole proprietorship, there are few limitations on formation, and there are a small number of forms to complete, usually in the local governmental offices (city or county). Secondly, in this form, the business owner has sole control of any profits made by the business, and the owner has complete autonomy in decision making, on the spot management and flexibility, and relative freedom from government controls and complicated taxation. However, although there are several advantages to this form of business structure, there are also serious disadvantages.

One of the most daunting aspects of operating a sole proprietorship is the issue of liability. This is because in the sole proprietorship, the business owner is responsible for all of the debts, liabilities, and obligations of the business. The difficulty with this is that any debts or liabilities that are not met by the business assets must be met by the individual's assets -- including homes, cars, and personal savings. In addition to the...

If the owner is unable to work, the business is usually unable to function.
A further disadvantage of the sole proprietorship is the difficulty with which one is able to secure significant capital and financing. Typically, the individual has relatively few assets with which to secure funding. This can make beginning or expanding certain types of business difficult. For example, starting a home daycare may not require vast amounts of capital, while embarking on a more specialized electronics business may require significant funds for equipment.

An additional factor in considering opeining a sole propriortship, is the very real relative lack of confidence many banks and other financial instiutions, as well as individuals (potential customers, for example), place on the sole proprietorship. After all, the relative ease with which virtually anyone can open a sole proprietorship necessarly carries with it a high volume of individuals incapable of conducting business effectively. Thus, the relative high failure rate of sole proprietorships, coupled with the higher percentage of a certain "lack of experience" among these business owners, casts a negative pall over the business form. Thus, the sole partnership carries with it less "clout." This may not only effect funding, but the actual conduction of business as well.

A partnership, or a joint undertaking between "two or more natural or artificial persons whereby they can carry on a business for joint benefit," has many advantages as well as disadvantages.

In a partnership two or more individuals (to a limit of twenty) join together to form a business. This business, however, is like the sole proprietorship, not legally separate from its partners, and as such, can…