Forms of Private Business Ownership

There are three major forms of private business ownership. These include sole proprietorships, partnerships, and corporations. There are several factors that must be considered before an owner makes a decision on what type of business he or she should establish. Some of these factors include, but not limited to, the financial situation of the owner, taxes, liabilities, state and federal laws as well as legal precedents. With that said, the following is a general description of each business entity to include some of advantages and disadvantages.

The sole proprietorship is a business entity in which an individual and his or her company are considered a single entity for tax and liability purposes. It is the simplest and easiest way to setup a business, not to mention the low cost. From private consultants, free lancers, independent contractors, nearly anyone can create a sole proprietorship. Hence, it is not a surprise that with over 17 million businesses operating in the United States, nearly 70 percent of businesses operate as sole proprietorships. In terms of taxes, it alleviates the difficult tax procedures that go along with other forms of operation. There are no corporate taxes involved and the sole proprietor pays income tax on the profits generated or loss. This makes the accounting procedure relatively simple for the sole proprietor, who also enjoys complete autonomy in terms of making business decisions.1

Unfortunately, sole proprietorship is not for every business owners especially for those who are not willing to assume all risks involved. Because the business does not exist as a separate legal entity, all the owner’s personal wealth and assets are linked to the business. If the business fails, the creditors can turn to the owner for payment and pay his or her debts from personal resources to include assets, even personal savings. Another downside is the inability to raise capital easily. Proprietors cannot sell