Fin/571 - Business Structures

Business Structures

Michelle Bivins

FIN/571

September 14, 2015

James Ciaramella

Business Structures

         In a world of business it is very important to know what type of structure is most beneficial when creating an organization. This paper will give information on the three types of Business Structures that are used in the business world.  Included will also be the advantages and disadvantages of each of these structures. Other “important considerations are the size of the business, the manner in which income from the business is taxed, the legal liability of the owners, and the ability to raise cash to finance the business” (Parrino, Kidwell, & Bates, 2012).

Thinking of the best way to allocate these ideas, structures are reviewed to determine which will be best. The three structures consist of Sole Proprietorship, Partnership, and Corporations.

Sole Proprietorship is when a business has one owner. This owner oversees the operations of the business. Sometimes sole owners hire staff members to help run the business, however that all depends on the type of business. “A sole proprietorship offers several advantages. It is the simplest type of business to start, and it is the least regulated. In addition, sole proprietors keep all the profits from the business and do not have to share decision-making authority” (Parrino, Kidwell, & Bates, 2012). Another advantage is the profits made as a Sole Proprietor fit under a lower tax bracket, which means more money for the business owner.

        The disadvantage is that the owner has to be responsible for all the bills and has unlimited liability which means the owner will be responsible for all debts.  “Finally, it is difficult to transfer ownership of a sole proprietorship because there is no stock or other such interest to sell, the owner must sell the company’s assets, which can reduce the price that the owner receives for the business” (Parrino, Kidwell, & Bates, 2012).

        The next type of business is Partnership, this type of structure deals with two or more owners. These owners must agree to terms on how they are going to run the business, how much capital will be needed, and how will the business be managed. It is vital for partnerships to sit down and discuss, agree, and then draw up contracts on which partner is going to facilitate what part of the business. Then there is the dividing of profits which might depend on how much capital each partner invests into the company.