Saturday, February 5, 2011

Business Structures

There are basically three types of businesses, each having their own distinct advantages and disadvantages. They are as follows:



  • Simple to setup and run
  • Income is taxed only once


  • UNLIMITED liability - this means that creditors can go after your personal assets for payment of the businesses debts
  • Limited growth due to no outside equity funding
  • Life of the business may be limited to the life of the owner


  • Owned and operated by one person



  • Same as sole proprietorship, but with two or more owners (partners)
  • Partnership agreement outlines how gains/losses will be divided.


  • Same as above, but a limited partner(s) have limited liabilities

CORPORATION - Multiple types of corporations are available, but we will focus on the basics of corporations


  • LIMITED liability - unless you sign away your personal assets on a loan, they cannot be sought after by creditors.
  • Easy to transfer ownership (stock sales)


  • Very regulated
  • Corporate income is taxed, and then dividend income is also taxed (the dreaded double taxation)

Different businesses require different business structures. The choice between starting a business as a sole prop or corporation is a tough one – you must carefully consider the pros and cons of each and how they affect your business when making that choice.

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