There are many reasons why a company may or may not become successful but one area of success for a company has always been the company’s foundation or structure. There are many structures for a business that will provide both advantages and disadvantages. This paper will discuss each structure. Business Structure
There are three types of business structures, partnership, sole proprietorship and a general corporation. Each structure has its disadvantages and advantages but the key is doing the research to determine which business structure will be suitable for your business venture. Many people may not be interested in running a small business so a sole proprietorship may not be the favorite structure to start with, or maybe when starting a business you may want your company to start small but eventually run as a corporation. Whatever the case may be one must understand the advantages and disadvantages of each structure. Sole Proprietorship
The most inexpensive and easiest way to get a business started is a sole proprietorship. The sole proprietorship business structure allows for a business owner to have complete control over decision- making in the company. Along with no corporate taxes, there is minimal startup costs when creating a sole proprietorship compared to other business structures as well as few business requirements. One major disadvantage of a sole proprietorship is that the business owner is held personally liable for all obligation and debts that the company may occur. If the business begins to
fail and the owner is not able to cover all cost associated then the owner will find themselves in a bankruptcy situation. If the liability extends further than what the business owner or employees can handle then all of the risk falls on upon the business owner. This situation becomes very risky and is a general reason why most investors won’t invest in a sole proprietorship but rather in a corporation or partnership. Partnership
An agreement between two or more people to operate and finance a business is considered a partnership. Unlike a sole proprietorship, a partnership is a separate legal entity from the actual partners themselves. However losses and profits flow through the partners tax returns during a general partnership. Partnerships are easy to establish and each partner has equal authority and responsibility to run the business. Each partner has the authority to represent the company without the knowledge of the other partner. If one partner signs a binding contract then both partners hold an obligation to that contract. The shared concept of business that characterizes a business partnership gives it certain disadvantages and advantages. A major disadvantage of a partnership is that fact that it’s a partnership, which means business partners are jointly liable for the action of each individual. Profits must be shared with each other which may cause conflict on who gets paid more. What happens if one partner put in less time and work? How are they compensated? These are major question marks that need to be answered when creating a partnership. Corporation
A corporation is the most complex of the three business structures to form and involves the most expenses and paperwork to start up but it also provides rewards that other businesses do not. A corporation is owned by shareholders who profit from the company’s gains and expansions. One of the biggest benefits a corporation offers is liability protection. Shareholders do not have the risk of losing personal assets like a sole proprietorship because corporations are considered separate entity’s from there owners. Corporations also enjoy tax benefits that partnerships and sole proprietorships do not, corporations file taxes separately from the company’s shareholders however, and a corporation is not required to pay tax on earnings paid to shareholders and employees.
corporation. CollinsDictionary.com. Collins English Dictionary – Complete & Unabridged 11th Edition. Retrieved January 12, 2015 Paul Lyndon Davies (2010). Introduction to Company Law.