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 companies 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 in regard to
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 in order 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 a sole proprietorship as it was just him running the
business with know 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 corp, 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
