Types Of Business
There are many different advantages and disadvantages of different types of ownership within the business sector. Before you start you’re new or expanded business plans. You need to explore all the options available to you. Will you be a Sole Proprietor or a Corporation or everything in between? The following report will examine six different business organizations in detail.
Sole Proprietorship: is when the business is fully owned and managed by one person (others can be employed to help run the business) as the sole proprietorship only monetary income is from the business, you don't receive a paycheck. If you need money for living expenses, you take a draw. A Sole ...view middle of the document...
Other characteristics are strong work ethic, willing to do whatever it takes to get the job done, organizational skills, etc.
3. Liability, as a Sole Proprietor you are personally liable for all debts, and negligence in the business (Your personal assets and income are not protected).
4. Lack of continuity is probably the biggest disadvantage of a Sole Proprietorship, if the owner becomes disabled or dies, more than likely the business will fail and close.
5. Another disadvantage of a Sole Proprietorship is that is difficult to expand or raise capital for your business or to move to new locations or another's state. Therefore your business more than likely will be confined to your local marketing area.
General Partnership: In a partnership there are two or more persons as owners. Partners take part in the daily operations of the business. There are also two more features that each person has to agree to in order for a partnership to form; they have to share a mutual interest in the business and take part in the profits and losses. In a general partnership, all partners have unlimited liability. They are personally accountable for all debts of the firm.
When forming a partnership, it would behoove the partners to draw up a legal document outlining each partner’s responsibilities and involvement in the business, i.e., how much time and finances each person will invest in the business, how profits and losses will be handled and how much control each partner has over the business.
Advantages of a Partnership;
1. Additional funding: The presence of more than one owner means that more than one person is providing funding for the business.
2. Shared losses: Any losses are absorbed by more than one owner.
3. Ability to specialize: each partner could have different skills to help make the business more successful.
4. Taxes, general partnerships are normally a pass-through tax. The partnership is not taxed, the partners are, under distributed income guidelines. This means the partners pay taxes on the share of profits or deduct for their share losses on their personal income tax. The partners report profit and losses on their individual 1040.
Disadvantages of Partnerships;
1. Shared control: With more than one owner, the risk exists that owners can disagree about how the business should be run. This can delay the decision making process and create tension among the partners.
2. Unlimited liability: All general partners have unlimited liability. If the partnership is sued or encounters severe financial difficulty, the owners can lose more than the amount they have invested in the company.
3. Shared profits: Any profits earned by the partnership must be shared among all partners.
4. Partnerships could terminate the following reasons, death, disability or withdrawal of a partner. This is why it's so important to have partnership agreements in place to address these kinds of events. What this means in the majority of general partnerships....