Define, compare and contrast sole proprietorships, partnerships, and corporations?

Three main types of business ownership are: sole proprietorship, partnership, and corporation. A sole proprietorship is owned by an individual person. The owner of sole proprietorship takes all liabilities and responsibilities. He makes all business decisions. The owner has unlimited liability. If debt of the sole proprietorship firm is not paid, personal property of the owner can be attached. (Melicher & Leach, 2012) Advantage of sole proprietorship is, the owner has complete control over the business, and he takes all benefits and profits.         

A general partnership is owned by two or more persons. All partners of a partnership share profits and liabilities. The partners run the business according to the partnership agreement. A partnership may be preferred over sole proprietorship as a partnership can bring more capital, and there are more than one person to take risks and run business. The limited partnership will limit the amount of liability to the amount of capital and investments paid into the business (Melicher & Leach, 2012). In limited partnership, at least one partner must remain a general partner.

A corporation has separate legal entity. The owners (shareholders) has limited liability. They are not personally responsible for debts and obligations of the corporation. If corporation fails to repay debt, owner’s personal assets are not at risk. This is a great advantage of corporation over sole proprietorship and partnership. Unlike sole proprietorship and partnership where owners pay tax, the corporation itself pays taxes on the profit.           

References

Melicher, R. W., & Leach, J. C. (2012). Entrepreneurial Finance (4th ed.). Mason, Ohio: South-Western Cengage Learning.