There are six key forms of a business organization to look at and consider before beginning any type of business. To be successful, it is critical to know the main characteristics of these forms of business as well as the advantages and disadvantages of each. Knowing this pertinent information will help you decide which one would be best suited for your needs.
1) Sole Proprietorship
The wonderful thing about a sole proprietorship is that they are simple to form because you are the one and only owner of the business. There is no legal difference between the owner and the business. You are ultimately in charge of making all decisions and handling all finances.
• Liability: In a sole proprietorship, the owner, is the same as the business. The owner is held responsible for all of the liability as a ...view middle of the document...
The business can also cease to exist by selling off or donating any of the business assets.
• Control: The owner has complete control of the business. They are ultimately responsible for every single decision, finance and detail of the business.
• Profit Retention: Any profit or loss of the company belongs solely to the owner. The owner can keep any profit from the business as their own and spend it accordingly.
• Location: Sole proprietorships can be operated from anyplace. They must, however, provide legal business documentation if they decide to sell any type of materials or services that could require a license.
• Compliance: One of the benefits of being a sole proprietorship is that the owner does not have to submit any type of reporting, agreements or other requirements to stockholders, board members, etc. This makes it an ideal form of business.
Advantages of forming a sole proprietorship include:
1. Sole proprietorships are easily formed by a single person. Most individuals use their name as the business name and there are no “startup” fees.
2. The sole proprietor has complete control over every aspect of their business. They can decide their own work hours, vacation schedule and business dealings.
3. All profit is kept by the owner. Profit does not need to be shared with anyone else, unless there are other employees.
Disadvantages of forming a sole proprietorship include:
1. One of the main disadvantages is raising enough capital to initially begin the business.
2. The sole proprietor is personally liable for all aspects of the business. This would include any costs to begin the business or any bills that are incurred for the business.
3. Since the business is not separate from the individual, and all profit for the business is reported as personal income, it makes the sole proprietor subject to a higher tax bracket.