Types of Business Ownership

By: Matt Duncan

Sole Proprietorhsip

This is a business entity that is owned and run by one natural person and there is no legal distinction between the owner and the business. Some advantages to this type of business are that the owner has complete control and decision making power over the business. They have no corporate tax payments. There are few formal business requirements. The disadvantages are that the sole proprietor can be held personally liable for debts and obligations of the business. All responsibilities and decision making falls on the shoulders of the sole proprietor. Some facts are sole proprietorship must file various tax forms with internal revenue service and pay any taxes due. A sole proprietor does not file taxes under an employer ID number but rather under his/her personal SSN.

Examples: Landscaper and freelance writer

Partnership

This business ownership is were two or more people carry on a business with a goal of earning a profit. The advantages are that they are usually less expensive to form and require less paper work and formalities than corporations. The disadvantages are that the general partners are held personally liable for debts incurred by the actions of another partner. A partnership most file an annual information return to report the income, deduction, gains and losses. They must register with the IRS, state and local revenue agencies and obtain a tax ID number or permit. some fun facts are that the general partnership is the simplest and least expensive co-owned business structure to create and maintain.

Examples: Microsoft and McDonalds

Limited Liabilty Partnership

This is a partnership in which some or all partners have a limited liability. Such as if one partner screws up the other is not responsible. The advantages are that you can't be held personally liable for acts that happen at the company. Partners have the authority to decide how they will contribute to the business operations. The disadvantages are that LLC is not considered a legal business structure in every state. Individual partners are not obligated to consult with other participates in business agreements. LLCs are governed under state statute to file requirements and fees. Some facts are there is still one person in the group who can be held personally liable for business debts. LLC traditionally has a limited life, such as it doesn't usually last longer than 40 years.

Examples: Lawyers, accountants, and architects generally use this

Corporation

This is an independent legal entity owned by shareholders. Some advantages are that shareholders are not liable for any debts incurred and judgments handed down against the corporation. Shareholders only risk their equity in the corporation. Some disadvantages are that it costs more money and time to form than any other business structure. Governmental agencies monitor corporations which may result in more paperwork. They have an employee conduct policy that establishes the duties and responsibilities each employee must adhere to as A condition of employment. Some fun facts are that a corporation traces back to the roman law and found its way to the American colonies through the British. The corporation today remains the most common form of business.

Examples: Apple, Asus, and IKEA