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.
