There are three main types of business, namely, Sole Proprietorship, Partnership and Corporations. Partnership allows for two (2) or more persons (up to 20) to operate and share ownership of a single business. This means that there is shared management, shared profit or loss, as well as shared risk; therefore, there are fewer consequences with regards to ownership, responsibility and liability.
Sole Proprietorship, on the other hand, is a type of business entity that is owned and operated by one individual and in which there is no legal distinction between the owner and the business. The owner, therefore, receives all profits and is personally liable for all losses and debts. Consequently, the owner’s personal and business assets are at risk.
A Corporation, however, is a distinct legal entity separate from its owners or shareholders. This means that the owners of a Corporation are its shareholders. The affairs of the business are managed and controlled exclusively by a board of directors. Of the three (3) alternative forms of Business Ownership open to me, namely, Sole Proprietorship, Partnership and Corporations, I would definitely choose Partnership as my start up business entity. This type of business ownership allows for two (2) or more (up to 20) persons to jointly own and operate a business, which therefore means that there is shared management, as well as shared risk.
Therefore, there are fewer consequences with regards to ownership, responsibility and liability which is a great advantage of the other two alternative forms of business ownership stated above which I will expand on and provide more details on the pages 2 – 5
One of the first decisions that you will have to make as a business owner is how the company should be structured and the type of ownership it will have. There are many forms of business ownership such as sloe trader, partnership and corporation the one you chose could equal to profit or loss. Partnership is superlative because it carries fewer risks; it allows co-owners alternatives to general partnership, easy formation and it attracts investors In a Partnership, two or more people share ownership of a single business. Its carries fewer risk because the responsibilities and capital investments are shared. Since each partners actually contribute whether by means of fundraising capability or personal asset this makes start up cost low.
This is not so with Sole trader everything is left up to them, responsibilities and capital so their risks are extremely high. Being a partner gives people more than ownership it requires that more than one person be available and accountable.
For example, doctors band together for the practical purpose of sharing on-call duties. In addition, being able to divide tasks along lines of interest or ability can make an enterprise not only more successful but also more enjoyable. Partnerships offer people a chance to do things that they would not be able to do on their own or to do them more successfully and opportunities open up when people combine forces. This makes partnership exceptional.
Another viable reason for a Partnership, is that it allows co- owners alternatives to General Partnership, such as Limited Partnership and Master Limited Partnership which both provides limited liability status, meaning that partners are entitled or limited to their investments whether their business fails or not. This is also the case for Corporation; however, there is limitation of stockholder’s liability to a fixed amount of investment, as opposed to Sole Proprietorship, whereby the owner of the business is personally liable for the debts of the company; hence, the owner stands to lose all its personal assets to honour the company’s obligation which may exceed the total investment.
There is ease of formation in Partnership, similar to that of Sole Proprietorship, because the business is reported as personal and owners are in complete control, within the parameters of the law, to make decisions at their own discretion. Management is also relatively easy as there is shared responsibility and capital investment, since more partners actually contribute whether by means of fundraising capability or personal asset; hence, legal informalities and expenses are few when compared with the requirements for the creation of Sole Proprietorship and Corporation.
Although in Partnership it is a requirement that the business have limited regulations regarding formality, the business can be terminated at the will of the partners, whether upon death or as laid out in a Partnership Agreement which details the duties and rights of each partner including asset and loss, distribution, rules concerning management and terms of dissolution. Although Sole Proprietorship has some similarities to that of Partnership, it is the easiest and least expensive to organize and start, but can also be the easiest business to dissolve, since the single owner is personally responsible for obligations of the business and reports income and losses.
The small size of the business and the owner’s contribution limits the breath of management skills, as well as fund raising opportunity because an unrelated investor will have less peace of mind concerning the use and security of his or her investment, therefore such independent business generally have a high chance of failing. No legal document is required for operation of this business also there is no legal requirement that governs how the owner closes out the business.
Corporation, on the other hand, is the most complicated and expensive of the other alternative business forms under discussion, as it relies heavily on large capital for start up of the business and great flexibility in time management which is crucial to the continuation of the business. A Corporation must adhere to technical formalities, by submitting Articles of Incorporation and is required to be controlled by a board of directors of several persons. If the required formalities are not kept, then the stockholders risk losing their personal liability protection and the business can also be a vulnerability to lawsuit.
Corporation is a distinct legal entity separate from its owner or shareholders, which may be privately or closely held and offered for sale to the public. This therefore means that no member of the company can be held personally liable for the debt obligations or acts of the company, but is liable for the unpaid portion of shares owned.
This may be beneficial to some stockholders as they can benefit by selling shares of stock based on the invested amount; however, corporation attracts double taxation because the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed. In Partnership the tax applicable is subject to individual rate.
Sole Proprietorship may also benefit from tax as the owner would declare his or her business income on a personal income tax form, rather than having to file a separate tax form like Corporation. In Conclusion Partnership affords distinct reward and benefits through pooling of funds which generate profits to the business that will flow directly through to the partners’ and broader management experience.
The partners not only pool funds but they draw on each other creativeness and ideas hence making the business strong and attractive to investors. No one partner will be overworked because responsibilities will be shared and there’s continuous life within the business. Hence making Partnership superlative because it carries fewer risks; it allows co-owners alternatives to general partnership and easy formation and it attracts investors.