Sole proprietorships are businesses run by one person. A few advantages of a sole proprietorship
are that they are easy to start and does not require the business to be registered with the Secretary
of State. Also, there are fewer regulation on sole proprietorships, along with having the freedom
to take all profits and not having to answer to anyone else. The disadvantages to sole
proprietorships are that all liability is taken on by the sole proprietor and that all business profits
are subject to both income and self-employment taxes.
Partnerships are a business entity formed by two or more individuals and are separately co-
invested in the business. A few advantages of partnerships are that it is a pass-through entity,
meaning that the partnership doesn’t pay income tax, but the individual partners are responsible
for including profits and losses on their tax returns. Also, partners are liable for each partners’
mistakes, unless the partnership is a limited liability partnership.
Corporations are business entities that are separate and distinct from their owners. They have the
same rights and responsibilities as individuals. A few advantages of corporations are that there is
limited liability between owners. Shareholders are only liable for their investment and the
corporation shields them from any further liability. Also, corporations are pass through entities,
meaning that the corporations do not pay income tax, and profits and losses are passed through to
their shareholders. Disadvantages of corporations are that there are many types of income and
other taxes to be paid, depending on the type of corporation, and there is double taxation.
In the future, I plan on having my own CPA firm. If I were to choose a business structure, starting
out I would most likely start as a sole proprietor, as I will be starting the business on my own and
will keep the business small. As I grow my business, my business structure will change. If I
choose to bring on a partner or more, I will change my business structure to a partnership.
I first became interested in accounting after I spent a day job shadowing my uncle. He
was a payroll accountant at a municipality. Honestly, I didn’t really understand the day-to-day of
what he did, but I could clearly see he enjoyed doing it. He didn’t hate it, while every other adult
in my life hated their jobs. He was happy, joking with co-workers, and getting tons of overtime.
This stuck with me. Years later, on the eve of my 30th birthday, I needed to make a career
change. I had been working in the hospitality industry for years and had lost all interest in
cooking professionally. I have now been an accountant longer than I was a cook and like my
uncle before me I love being an accountant.
By earning my master’s degree, I hope to develop the skills needed to move up into a
management position with my current employer. I work at the largest affordable housing
organization in Southern Maine. The finance team supports the other departments that build and
manage safe, clean, affordable housing for the unhoused, low-income, new-Mainers and seniors.
When I am not at work, my wife and I spend time with our cats often watching horror movies.
When deciding what form your new business should take, you must consider the advantages and
disadvantages of each form. A sole proprietorship is an unincorporated business owned by one
person (Anderson, et al., 2023). A sole proprietorship is not a separate entity from the owner.
Income and expenses are presented on the owner's individual tax return. There are no tax
consequences for contributing cash to or withdrawing profits from the business. Sole
proprietorships are responsible for the full Social Security taxes, unlike corporate employees
(Anderson, et al., 2023).
A partnership is an unincorporated business run by two or more entities for profit
(Anderson, et al., 2023). The partnership does not pay taxes, the income passes to the returns of
the partners. Partnership income is not double taxed. With few exceptions income contributes to
the partnership or profits withdrawn are generally not taxed (Anderson, et al., 2023). The partners
must pay taxes on profits even if there are no distributions. Partners must pay the full self-
employment taxes (Fleischman & Bryant, 2000).
A C-Corporation is a separate and distinct entity from its owners (Anderson, et al., 2023).
C corps are taxed at the corporate level and when earnings are distributed to shareholders
(Fleischman & Bryant, 2000). Shareholder employees only contribute half of the Social Security
taxes. A C-Corp can also use a fiscal year-end instead of a calendar year-end (Fleischman &
Bryant, 2000). Unfortunately, net operating losses convene no tax benefit to the shareholders in
the year of the loss. The same is true for capital losses (Anderson, et al., 2023). An S-corporation
is a passthrough entity with characteristics of both a partnership and the protections of a
corporation.
Sole proprietorship example: Betsy Cashew had recently been let go from a large tech
firm due to a contraction in that industry. Within days of this news, Betsy received a gift from a
relative that had passed, $30,000. With these funds Ms. Cashew decides to purchase a used van, a
shop vac, a bundle of microfiber clothes and a king’s ransom in cleaning against and polishes;
Betsy was opening her own mobile car detailing service. She never wanted to have a boss that
could fire her again, she wanted control. Betsy is the sole owner and employee. There is no plan
to expand the business or hire additional help. Betsy Cashew has decided to establish her business
in the form of a sole proprietorship.
A sole proprietorship has a single owner (SBA, n.d.). It does not have shareholders and all
liabilities of the business are in the hands of the owner. The company’s assets and liabilities aren
not separate from the owners assets and liabilities. The advantages and disadvantages can
alternate for a sole proprietorship depending on the circumstances. A sole proprietorship is easy
to create and give the owner complete control over the business. Be personally liable for the debts
and obligations can be a disadvantage of this type of business. Being labeled as a sole
proprietorship is good for low-risk companies.
A partnership has two or more owners and the liabilities are split amongst them (SBA, n.d.).
There are limited liability partnerships and limited liability partnerships. With a limited
partnership, one partner has unlimited liability while the other partners have limited liability.
Profits are split among the parters and pass through the personal tax returns. The general partner
must also pay self-employment taxes. Limited liability partnerships give limited liability to each
partner. The advantage of this type of partnership is it protects partners from debts associated
with other partners.
A corporation is typically owned by multiple stakeholders and is a separate entity from the
owners (SBA, n.d.). An advantage of a corporation is it provides the most protection for owners
regarding liabilities. However, a disadvantage is it requires more extensive record keeping and
operations. Corporations are taxed when they make a profit and then when they pay dividends.
Corporations also have the advantage of being able to sell stock to help raise funds. A corporation
is good for high-risk companies.
My dad started his own electrical company about four years ago. He started off a sole
proprietorship as it was just him running the business with known employees. Recently his
company has expanded and he now has three employees. Therefore, he made the switch to an
LLC. He gained more assets during his expansion and becoming an LLC helps him protect those
and protect him from personal liability (SBA, n.d.). His business is taxed as a c crop, which
means he pays taxes on gross income and then the earning are distributed to him (Truic, 2023).
Then he must also pay income tax on dividends. Being an LLC is good for his company because
it is a small business with a medium to high risk.
References:
SBA. (n.d.). Choose a business structure. https://www.sba.gov/business-guide/launch-your-
business/choose-business-structure
Truic. (2023). Single-Member LLC Taxes. https://howtostartanllc.com/taxes/llc-taxes/single-
member-taxes
Anderson, Kenneth, et al., editors. Pearson’s Federal Taxation 2023 Corporations, Partnerships,
Estates & Trusts. Pearson Education, Inc, 2023.
Fleischman, Gary M, and Jeffery J Bryant. “C Corporation, LLC, or Sole Proprietorship? What
Form Is Best for Your Business?” Management Accounting Quarterly, vol. 1, no. 3, 2000,
pp. 1–8.
Bragg, S. (2022, November 20). Corporation advantages and disadvantages. Accounting Tools.
Retrieved February 2, 2023, from https://www.accountingtools.com/articles/corporation-
advantages-and-disadvantages.html
Dtallent, B. (2022, December 20). Sole proprietorship vs. partnership: Differences between these
types of businesses. Camino Financial. Retrieved February 2, 2023, from
https://www.caminofinancial.com/sole-proprietorship-
partnership/#:~:text=While%20partnerships%20have%20to%20pay,sole%20proprietorships%2C%
20partnerships%20are%20easy.
