Business Structures

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

SOLE PROPRIETORSHIP

Pros

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

Cons

• 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

Neutral?

• Owned and operated by one person

PARTNERSHIP

General

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

Limited

• 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

Pros

• 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)

Cons

• 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.