When entrepreneurs set out to start a business venture, many of them start with a sole proprietorship. A sole proprietorship usually involves a single person who runs a business on his or her own. Sole proprietorships are small businesses that often take off to form larger business entities when the owner desires to do so or when the right opportunities are presented. Some of the disadvantages of having a sole proprietorship are the simplicity of operating the business, ability to have complete control over business affairs, increased personal income, and simpler government regulations to follow.
The disadvantages are the unlimited liability the owner has, the possibility of losing personal assets invested, and limited life (Fay, 1998). An entrepreneur must be willing to take risks when venturing out to start a new business on their own. Time, money, and hard work must all be invested in order to start a sole proprietorship considering the fact that the owner is doing most of the work alone. Some prospective business owners desire to start small businesses that will allow them to offer their goods and services.
Sole proprietorships are good starting points for individuals who desire to start a business. When opportunities come about, these entrepreneurs will then consider moving on to a larger business entity. General Partnership In some cases, two or more people may have a business idea that they desire to pursue. In this case, they may choose to start a partnership. A partnership is a business enterprise that usually requires two or more people to start a business.
Fay defines a general partnership as “a business structure where each partner is liable beyond what he or she has invested in the enterprise (Fay, 1998). ” Some of the advantages of starting a partnership are that profits and losses are shared among partners, not a taxable entity, and the fact that each partner is liable only to the extent of the amount each has invested into the business (Fay, 1998). Although it may serve as an advantage, the shared power over business operations of a general partnership could also be a disadvantage if the partners were to have conflicting views.
Similar to a sole proprietorship, the unlimited liability for the partners of the business is a disadvantage. Limited Liability Company A limited liability company is a business entity that is a mix between a partnership and a corporation. Tiwary describes a limited liability company as a type of business offering more protection from creditors’ claims than a partnership. Owners in a limited liability company are referred to as members, which can be individuals or corporations.
The advantages of starting this type of business organization are more management flexibility, liability protection for owners and shareholders, fewer compliance issues, and the ability to decide on how it wants to be taxed. The disadvantages include difficulty finding investors, additional taxes, and lack of business structure (“Pros And Cons Of A Limited Liability Company”, 2012) Professional Corporation “A professional corporation is a variation of the corporate form of business organization that is available to entrepreneurs who provide professional services (“Professional Corporations,” 2012).
” These corporations usually exist separate from the actual owners. Entrepreneurs who are usually interested in starting professional corporations are doctors, lawyers, accountants, etc. The advantages of starting a professional corporation are possible tax breaks, ability to provide insurance to employees as tax-free benefits, tax deductions, and indefinite company existence. Possible disadvantages are the flat corporate tax rates and limited flexibility in distributing income (“Professional Corporations,” 2012) Tax and Legal Implications.
The taxation for a sole proprietorship is fairly simple compared to the other more complex types of businesses. Income earned through sole proprietorship is earned by the sole owner of the organization. The larger a business becomes the more tax and legal implications that come about. Corporations and partnerships are much more complex than a smaller business such as a sole proprietorship. Growing My Business The type of business that I would start up with the help of government funds is.