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 are 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 labelled 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 partners 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 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 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 corp, which means he pays taxes on gross income and
then the earning is 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.
A sole proprietorship has a major advantage due to the simplicity of setting up this type of entity
compared to all others. A person simply becomes a sole proprietor by running a business. Another
advantage would be that the owner will have 100% ownership of the business and control as well. A
sole proprietor can only have one owner and the owner is entitled to all profits as well as full control
of the business. However, a disadvantage would be the liability of the business. The owner of a sole
proprietor is held responsible for all liabilities related to the debt and obligations of the business.
This means that the owner could have to pay out on his personal accounts, assets, or property to
cover all debts.
A partnership has the advantage of obtaining capital easily. Due to the cost of starting a business
from the ground up, this will allow many more opportunities for the business to obtain capital from
various resources. A partnership allows an individual to not carry all the burdens when providing
capital due to the capital is dispersed between all members of the partnership. This will allow for an
increase in overall financial security and cash flow for the business. Another advantage would be
taxation on a partnership. You will only pay taxes on your share of the business and everyone
involved would pay their share of the taxes. Therefore, you will file and pay taxes on your share of
the business which will reduce the overall burden of having to pay all taxes for the company. A
disadvantage of a partnership would be the decision-making of the company. Everyone will need to
come to an agreement otherwise nothing will happen. This is considered a disadvantage due to
people involved can have different ethics and can cause clashes over matters.
Lastly, we have corporations that are known to have many long-term advantages. One advantage
would be the many investors that could be obtained within the corporation which will allow the
corporation to strive and continue. A corporation would also be able to obtain a large amount of
capital compared to a partnership by simply selling shares and issuing bonds, especially if the
corporation is publicly traded. The biggest disadvantage would be the likely double taxation that it
may face. This is done by a corporation paying taxes on its income and then the shareholders having
to pay taxes on the dividends it received from the corporation which would make double taxation
exist.
Therefore, if I was to open a construction company, I would make the decision to run it as a sole
proprietor due to the simple fact the construction company will be small which would make it very
manageable for one person to run.
References:
Bragg, S. (2021, June 25). Corporation advantages and disadvantages. AccountingTools.
https://www.accountingtools.com/articles/corporation-advantages-and-disadvantages.html.
Business partnerships: What you need to know.
Business News Daily. (n.d.). https://www.businessnewsdaily.com/15746-business-partnership-pros-
and-cons.html.
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
