There are many advantages for each type of business. Sole Props are the easiest to set up since the
paperwork is minimal. A partnership is a a business set up by two or more people. c An LLC (limited
Liability Corporation) is a flexible business that combines the aspects of both partnerships and
corporations. Corporations are created by shareholders. They have many more tax advantages then
the other types.
Sole Props allow the owner to have complete control. However, it also provides the least protection
from personal assets. c Partnerships have pass through entity which means that the income is treated
as the owners’ incomes so it is only taxed once. Owners in partnerships are responsible for the
liabilities of the firm. (Team, 2022) there are different aspects of partnerships: General, Limited
Partnership, and LLPs. LLCs are the best of both worlds. LLCs protect the owners from any personal
liabilities. c The Corporations can be classified as C Corp and S Corp. C Corps are double taxed: once
at the entity level and then again individually. S Corp are a pass through so they are only taxed once.
As far as disadvantages and advantages of sole proprietorship, corporations, and partnerships are
Sole Proprietorships - The advantages of sole proprietorships are the owners have an elevated level
of autonomy to run their business. Next, there are truly little Federal, State, and Local regulations
for sole proprietorships. Also, sole proprietorships do not have to pay the corporate tax rate and
deal with double taxation. Some disadvantages are the lack of liability for the owner. Meaning they
are responsible for personal and business debt obligations comprehensively. In other words, they
are personally responsible for all business debts. Partnerships- In a partnership one big advantage is
the share of responsibility of the partners to manage and run the business. Also, Partners report
their share of profits and losses on their personal income tax returns. They also do not have to file a
business tax return. Disadvantages are the liabilities are comprehensive for partners being serious
and personal debt.
Corporations- Some advantages to name are the limited liability protection for shareholders,
directors, and officers for company obligations. That said, a shareholder's debt liability does not
exceed his investment. Corporations can also raise capital by issuing stocks and bonds but not
paying the corporations' existing obligations before issuing. On disadvantages of course the big one,
double taxation. Meaning, Corporation must file a business tax return with the IRS and pay taxes on
the profits and losses at the corporation's applicable corporate tax rate. Shareholders are
responsible for their portion of dividends on their individual income taxes.
Example: There are 3 individuals forming a property company with rental income and interest
income on mortgages on properties they finance. In this case a partnership is ideal for the 3
individuals considering they would have less liability as it is divided up among all 3 partners. Also,
the managing responsibilities are issued out and provide each with more flexibility and
opportunities for their business. They also would not be required to file a business tax return and
each partner would be individually responsible for his or her share of the losses and profits. Being
able to avoid double taxation and corporate tax rates.
Team, C. (2022, Nov 26). Types of Businesses. Retrieved from Corporate Financial Institute:
https://corporatefinanceinstitute.com/resources/management/types-of-businesses/
