Business Structures

Business Structures

Nancy Diaz

FIN/571

August 6, 2015

Mitchell Korolewicz

Business Structures

The week one electronic reserve reading videos identified the various business structures available to the consumer that wants to become a business owner. With each structure, there are advantages and disadvantages for the proprietor to consider prior to initiating the business structure. The business structures discussed within the videos were a sole proprietor, partnership, and corporation. The corporate structure video outlined the differences in corporate structures and the level of disadvantage with each structure. For the new proprietor, identifying the most advantageous business structure for their product or service is a crucial element of beginning a business venture.

The three types of business structure are a sole proprietor, partnership, and corporation. A sole proprietor is a privately owned business that is controlled and operated by a single individual or a single individual with employees. A sole proprietorship gives the owner full control of business decisions, all revenue generated by the company goes to the owner, and the tax liability is significantly cheaper. The disadvantage of a sole proprietorship is the lack of protection it offers to the owner. The owner is personally liable for all debts or liabilities created by the business. The owner’s personal assets are not protected in the event of bankruptcy or lawsuit.

A partnership is two or more individuals establishing a company together. The partnership is similar to a sole proprietorship because the partners will have control of all business decisions and the revenue the business generates will go to all partners. The partnership like a sole proprietorship is taxed at a significantly cheaper rate because the revenue is taxed as income to each party. Also, like the sole proprietor, a partnership has no protection from business liabilities. The business is not a separate legal entity. The partners are all personally liable for the business debt or liabilities created as a result of business operations. Partnerships have one more disadvantage that a sole proprietor does not if one partner’s actions create a liability all partners can be held responsible for their partner’s liability.

Lastly, Corporations are a business entity owned by stockholders. A corporation is a separate legal entity from its owners which provides protection from the businesses debts and liabilities. A corporation is privately held like an S Corporation or publicly traded. The corporation is purely owned by stockholders, and the number of stockholders can be unlimited. A corporation is subject to stricter control standards dependent upon the industry and is significantly harder to form due to the legal requirements the owners would have to meet. Corporations are taxed at higher rates because they are separate legal entities from the owners which requires the business to file a tax return separate from the owners.