If someone wants to start a business, that person would have to decide which structure he or she would want to use. To know what kind of structure he or she has to know what kind of business he or she is trying to run and who will run it with him or her. Structures range from sole proprietorships and partnerships to corporations. When companies first start up, they consider sole proprietorships or partnerships, but as they grow into larger companies, they become corporations. When someone first opens a business it may just be him or her, those companies consider sole proprietorships, meaning a business owned by one person. There are several advantages when running a sole proprietorship.
First is it is the simplest type of business to start and run and also it is not regulated as much. Also, sole proprietorships pay lower income taxes compared to other business structures. Last, when a company is a sole proprietorship, decision-making rest on the owner’s shoulders but the owner keeps all profits (Films Media Group, 2011). Even though there are some very good advantages owning a sole proprietorship, there are also some disadvantages. The biggest advantage is also the biggest disadvantage, the bills, debts, and major obligations. If the owner does not pay the bills, the company cannot run. Another big disadvantage is the capital the business has. If the owner does not have some other capital invested into the company, the company will not grow.
The last disadvantage is running the company when the owner leaves or dies. Because there is no one else with stock, the owner has to let the company go (Parrino, Kidwell, & Bates, 2012). The next business structure is a partnership, which consist of two or more owners that legally run the business together. With a partnership, the owners know what his or her position in the company is and how the profits would be split. There are two different partnerships; a general partnership and a limited partnership. The general partnership has the same advantages as a sole proprietorship, but has one more disadvantage. All owners have unlimited liability regardless of the percentage in the company (Parrino, Kidwell, & Bates, 2012).
To avoid the big issue with a general partner, the partner would sign into a limited partnership. In a limited partnership, the company can have general and limited partners. One or more general partner has unlimited liability while limited partners only deal with the obligations he or she provides. To qualify as a limited partner, he or she cannot engage in the managing of the business (Parrino, Kidwell, & Bates, 2012). The last business structure is the biggest and the last to get to. Large companies consider themselves to be corporations. Corporations consider themselves as a “person,” where the corporation can sue and also be sued, borrow money, and own assets like real estate.
An advantage of a corporation is that the stockholders have a limited liability for all of the corporation’s obligations. Because the corporation is a “person,” the corporation is taxed as a “person” on the income it earns (Films Media Group, 2011).
References Films Media Group (2011). Planning Your Business: Research, goals, and business plans [Video podcast]. Retrieved from https://newclassroom3.phoenix.edu/Classroom/ToolContainer.jsp?context=co&contextId=OSIRIS:40817068&activityId=16e92012-daa3-4692-89b0-622c50a227b6&profileId=4136b5d5-519c-4e35-a63a-f84741e11cd2&syllabusId=OSIRIS:40817068&version= Parrino, R., Kidwell, D. S., & Bates, T. W. (2012). Fundamentals of Corporate Finance (2nd ed.). Danvers, MA: John Wiley & Sons, Inc..