pros and cons of popular forms of business
TRANSCRIPT
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.