pros and cons of popular forms of business

Pros & Cons of Popular Forms of Business

Samantha McNair

Primary Business Entities

In owning and operating a business it is important to understand the numerous forms of business

organizations available today. These types of business organizations include :

• Sole Proprietorship

• General Partnership

• Limited Partnership

• Corporation (inc.)

• Limited Liability Corporation

Sole Proprietorship

Pros• Simple formation.• Owner is solely

responsible and does not have to worry about actions of partners.

• Taxed at personal income level.

Cons• Owner is solely

responsible and held personally liable.

• Both business and personal assets are liable and subject to lawsuit.

• Does not qualify for specific tax advantages that corporations enjoy.

Reducing Liability: Ensure ethical and legal conduct, liability insurance, and changing business to a LLC. Transfer or “sell” large personal assets to spouse to limit exposure.

General Partnership

Pros

• More partners = more money available for investment.

• Responsibilities and management can be divided

Cons

• Partners are all responsible and held personally liable.

• Both business and personal assets are liable and subject to lawsuit.

• Unlimited liability for firm debts.

Reducing Liability: Ensure ethical and legal conduct, liability insurance, consider changing business to a limited partnership. Transfer or “sell” large assets to spouse to limit exposure.

Limited Partnerships

Pros

• Owners are treated similar to shareholders.

• No liability beyond loss of investment (including business debt).

Cons

• LP’s are held in accordance with state statutes, where requirements may vary.

Reducing Liability: Ensure ethical and legal conduct, employee training in areas such as safety, diversity, and sexual harassment in the workplace. Liability insurance is essential.

Corporations

Pros• Business is viewed as a

separate entity from the owners.

• Business is treated as an artificial being with the ability to own property, borrow money, pay taxes, and be sued.

• Owners are not personally liable beyond their investment in the company.

Cons

• Subject to double taxation as corporation and shareholders pay taxes on profits.

Reducing Liability: Ensure ethical and legal conduct, employee training in areas such as safety, diversity, and sexual harassment in the workplace. Liability insurance is essential.

Limited Liability Corporations

Pros

• LLC’s avoid double taxation.

• Liability is limited to corporate assets and investments.

Cons

• Owners are held liable for shareholder interests.

• Formation may require assistance from an attorney.

Reducing Liability: Ensure ethical and legal conduct, employee training in areas such as safety, diversity, and sexual harassment in the workplace. Liability insurance is essential.