Business Entities

By: Blake Cassell

Sole Proprietorship

A Sole Proprietorship is a type of business entity that is owned and run by one person and in which there is no legal distinction between the owner and the business. A good example of a sole proprietor would be a landscaper or a tutor. They are self employed people who run a small business by themselves. Although a sole proprietorship has its advantages such as being easy to run, easy to manage, with minimal paperwork, there are still disadvantages as well. One of the disadvantages of a sole proprietorship lies in the fact that there is no legal distinction between your personal and business finances. That means that if you're sued and you lose your business, there is no government protection of your personal savings. That means that whoever is suing you doesn't have to stop at your business, they can take away your house, your car, and your savings.


-Most small businesses begin as sole proprietorships.

-Sole proprietorships are the most inexpensive businesses to establish.

-Because a sole proprietor and an owner are the same person, only one tax return needs to be filed.

What Is A Sole Proprietorship?


A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business. Partnerships, just like sole proprietorships, are fairly easy and inexpensive to establish. Another advantage of a partnership is that 2 heads are better with 1. With having extra people, you're able to accomplish more than you would in a sole proprietorship, thus increasing your borrowing capacity, as well as increasing business capital. A partnership, however, does not have liability coverage, meaning that each partner is jointly responsible for the partnerships debts.


-A partnership does not pay tax on its income. Instead each partner pays tax on he share of net partnership income each receives.

-If there is no agreement in place, each partner is deemed to own equal shares of each asset.

What Is A Partnership?

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, unlike in a partnership, one partner is not responsible or liable for another partner's misconduct or negligence. An LLP has separate credit, tax benefits, higher capital, a low IRS audit rate, and liability/asset protection. With these benefits also come disadvantages, such as taxing authorities in some states recognizing the structure as a non-partnership for tax purposes. This could be a big disadvantage for partners who require special tax consideration. Another disadvantage is that individual partners are not obligated to consult with other participants in certain business agreements. This means that one partner could potentially effect the business in a very negative way without the consent of other partners.


- In most states, LLPs are only available to a select group of professions, such as law and accounting firms.

- Like shareholders in a corporation, Limited Liability Partners are not personally liable for all the debts, obligations and liabilities of the partnership.

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A Corporation is A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. Corporations' shareholders are not liable for any debts incurred or judgments handed down against the corporation. Shareholders only risk their equity in the corporation. Disadvantages of corporations include extensive paperwork due to governmental agency monitoring, as well as corporations being more expensive to start.


- Corporations can be private, nonprofit, municipal, or quasi-public.

- Most states don’t impose a corporate tax, choosing instead to tax the business’s profits on the shareholders’ personal tax returns.

What is a Corporation?