Forms of Business

Mainly there are three forms of business;

  1. Sole Proprietorship
  2. Partnership
  3. Corporations

1. Sole Proprietorship

A sole proprietorship is a form of business that is possessed by one person. From a legal viewpoint, the company and its proprietor are deliberated one and the same. On the plus side, this means that all profits are the stuff of the owner (after taxes are paid, of course). On the other side, though, the holder is generally accountable for the firm’s losses and debts. This presents an incredible risk. If a sole proprietor is on the losing end of an important lawsuit, for example, the proprietor could find his private assets lost. Utmost sole proprietorships are small and numerous have no employees. In most towns, for example, there are a number of self-employed repair people, plumbers, and electricians who work alone on home repair jobs. Also, many sole proprietors run their businesses from their homes to avoid expenses related with working an office.

Advantages of Sole Proprietorship

  • It's the calmest to set up because it doesn't require the particle of any papers.
  • No registration is required for proprietorships.
  • Profits are only taxed once on the proprietor's individual tax returns.
  • The proprietor has complete control of the business and creates all the decisions.
  • Tax forms are not complex.
  • Assets are stress-free to liquidate upon the death of holder.

Disadvantages of Sole Proprietorship

  • The holder is visible to limitless legal liabilities. If you lose a lawsuit, you could lose your home, car and other personal assets.
  • Proprietorships cannot receive capital from outside investors.
  • Borrowing money is more problematic. Banks are unwilling to make business loans to sole proprietorships.
  • Business will be liquidated when proprietor is dead.

2. Partnership

Partnership is a form of business in which two or more buddies share possession of a firm. A partnership is alike to a sole proprietorship in that the partners are the only recipients of the firm’s profits, but they are also accountable for any losses and debts. Partnerships can be especially striking if each person’s knowledge accompaniments the others. For example, an accountant who major in in making individual tax returns and another who has mastered business taxes might select to join forces to propose customers a more whole set of tax services than either could propose alone.

From a practical point of view, a partnership permits an individual to take time off without closing down the business provisionally. In a partnership of two home builders, if one were to undergo a serious injury, the other partner could take over overseeing his or her partner’s projects and see them through to conclusion. Had the builder been a sole proprietor, the customers and the business would have suffered greatly. However, a person who chooses to be part of a partnership rather than functioning alone as a sole proprietor also takes on some risk; your partner could make bad decisions that end up costing you a lot of money. Thus emerging trust and sureness in one’s partner is very important.

Advantages of Partnership

  • They're easy and simple to form.
  • A partnership can carry together a group of individuals with different skills to part in the accountabilities of running a business.
  • If the partnership agreement authorize, a partnership could continue to exist if one of the partners dies.

Disadvantages of Partnership

  • Partners are open to unlimited liabilities.
  • Owners will not always agree on decisions. This could results to management conflicts.
  • Partners share in the profits of the business, but will not always feel they are being sufficiently compensated for their contributions and services.


A Corporation, leased by the state in which it is headquartered, is deliberated by law to be a distinctive entity, distinct and apart from those who own it.  A company can be taxed; it can be sued; it can enter into contractual agreements.  The proprietors of a company are its shareholders.  The shareholders select a board of directors to look after the chief policies and decisions.  The company has a life of its own and does not dissolve when possession changes.

Advantages of Corporation

  • Shareholders have partial liability for the company’s debts or decisions against the company.
  • Usually, shareholders can only be held responsible for their investment in stock of the company.
  • Company can increase extra funds through the sale of stock.
  • A company may remove the cost of benefits it delivers to officers and employees.
  • Can elect S Corporation status if certain requirements are met.  This election enables company to be taxed similar to a partnership.

Disadvantages of Corporation

  • The process of formation needs more time and money than other forms of organization.
  • Companies are checked by federal, state and some local agencies, and as a result may have more paperwork to comply with guidelines.
  • Incorporating may result in higher overall taxes.  Dividends paid to shareholders are not deductible from business income; thus this income can be taxed twice.

introduction to business

November 14, 2018