4 Major Types of Business Ownership

Sole Proprietorship, Partnership, LLP, and Corporation

By Tommy Consolino

Sole Proprietorship

A sole proprietorship is a business where the owner business. You take all of the gains and you take all of the loses.

Advantages

  • Inexpensive: Costs are very low and obtaining the necessary license or permits are cheaper.
  • Complete Control: You are the sole owner of the business.
  • Easy Tax Preparation: You and your bus are not taxed separately.

Disadvantages

  • Unlimited Personal Liability: You can be held responsible of debts of your company.
  • Hard to Raise Money: Since you can't sell stock it can be very difficult to get money.
  • Heavy Burden: You are held responsible for the Failure of the company.

Facts: 1.You need a short term operating plan 2. You need a long term strategic plan 3. Even though you are the only owner you need to be a good people person.

Examples: A freelance writer, landscaper, and a catering company

Partnership

A partnership is a single business where two or more people share ownership. Each partner contributes to all parts of the business, including money, property, and skill. Each partner shares in the profits and losses of the business.

Advantages

  • Inexpensive: Costs of starting a partnership are low because you are splitting the cost.
  • Shared Financial Commitment: Everyone is equally responsible for success and failure.
  • Shared Skills: You can help use you strengths to help others weaknesses and vice versa.

Disadvantages

  • Joint Liability: You are responsible for your partners actions just as much as yours.
  • Disagreement: You and your partners may not agree on the same things.
  • Shared Profits: You share the benefits.

Facts: 1. There are 4 types of partnerships: Active Partners, Dormant Partners, Nominal Partners, and Minor Partners. 2. The limit on number of partners is 20. 3. A partnership could end if a partner dies.

Examples: Warner Bros, McDonalds, Microsoft, and many more

LLP

A LLP is a partnership in which some or all partners have limited liabilities. It has qualities of partnerships and corporations. In an LLP, one partner is not responsible or liable for a partner's failure.

Advantages

  • Liability Protection: All partners are protected by some form of liability protection.
  • Securities Law: Security law doesn't come into play when people change ownership.

Disadvantages

  • State Limitations: In some states LLP are not considered LLP.
  • Weak Protection: LLC and corporations offer better liability protection.

Facts: 1. You take out loans to start an LLC 2. Partners can owe the company a duty

Examples: Coca-Cola. KFC, and Google

Corporation

A corporation is an independent legal entity owned by shareholders. The corporation itself is not the shareholders that own it, but it is held legally liable for the actions and debts the business comes by.

Advantages

  • Limited Liability: Shareholders’ things are protected. Shareholders can usually only be held accountable for their investment in stock of the company
  • Ability to Generate Capital: They can raise money through stock.
  • Employees: Corporations are generally able to attract and hire high-quality and motivated employees.

Disadvantages:

  • Time and Money: Corporations are very expensive and time-consuming to start and operate.
  • Double Taxing: Corporations are taxed twice: 1. When the company makes a profit 2. When dividends are paid to shareholders.

Facts: 1. The most dominate kind of business in the US. 2. Dominate our political system

Examples: Nike, Starbucks, and Dominoes

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