Sole Proprietorship, Partnership, Franchise, Corporation, Limited Liability Company, are all examples of business formats available today. We will review each type of business and their function or purpose. We will take a look at the positives and drawbacks of each, and evaluate them to gain a better understanding of each.
Sole Proprietorships make up the majority of small businesses in America today. They are easily started and typically do not require a large initial investment. Sole Proprietorships are businesses like the little mom and pop sandwich shop around the corner. They are started out by a single owner and are not separated financially from their owners. They may have separate banking information from the owner but taxation requires that the business and owner are one. The single most distinguishing feature of Sole Proprietorships is the unshared, unlimited liability and responsibility of the owner.
There are several advantages to a Sole Proprietorship. First is the simplicity of it. Typically there are very few restriction s and they require minimal licensing. They offer independence, and the ability to ‘be your own Boss.’ Of course there is the fact that as the owner all the profits belong to you. Taxes are combined so there is no separate filing and there are tax advantages to filing as a business rather than an individual. That brings us to the disadvantages of Sole Proprietorships.
Some disadvantages to being a sole proprietor is often resources are limited. Because there aren’t any real differentiating factors between the business and its owner often credit is based on the owner of the business. Verifying income is difficult for banks to discern so obtaining loans can be difficult. The biggest disadvantage is the unlimited, unshared liability and responsibility of its owner. If the business doesn’t make a profit often neither does the owner. If the business is successful the owner is successful. When the business struggles or runs into a problem the owner is responsible or liable. There is also the mortality factor often when a business owner dies the business dies with them.
Sole Proprietorships’ are not for everyone, but they are a great way for most to start working for themselves. Gaining independence and knowing that your success lies mostly on you can be exciting and rewarding, but does have its drawbacks.
Partnerships are another great way to get in business for you. Much like a Sole Proprietorship a partnership can allow an individual or group of individuals to become their own boss, and profit from their own success. There are two types of Partnerships. First is A General Partnership, which means that two or more people come together to equally share responsibility or be equally involved in the success of the business. Each is fully liable for the debts, liabilities and profits of the business. The second is a Limited...