Sole Proprietorship
In a sole proprietorship, the owner is 100% liable (legally responsible) for the business, including all debts and actions. The business income tax is filed with the owner’s personal income.
Some examples of common sole proprietorships are housecleaning services, real estate agents, landlords, general contractors, agriculture (those who own farms, ranches, nurseries and orchards), etc.
Pros
- Low start-up costs
- Greatest freedom from regulations
- Owner has full control
Cons
- Unlimited liability (you can be sued)
- Lack of continuity
- Difficult to raise capital
- Limited transfer of ownership
Partnership
In a partnership, each partner is wholly liable for the business. Debts and profits are shared among the partners. It is strongly recommended that a Partnership Agreement be drawn-up by a lawyer.
Some examples of common partnerships are accounting firms, law firms, doctors’ offices, etc.
Pros
- Low start-up costs
- Broader management base
- Possible tax advantages
- Limited outside regulations
Cons
- Unlimited liability
- Lack of continuity
- Divided authority
- Limited transfer of ownership
- Difficult to find suitable partners
Corporation
A corporation is a distinct legal entity where owners have legal liability up to the limit of their investment. Debts and profits are shared among shareholders. Incorporating can be complicated so legal and accounting assistance is recommended.
Pros
- Limited liability
- Ownership is transferable
- Possible tax advantages
- Continuous existence
- Easier to raise capital
Cons
- Closely regulated
- Costly to set-up
- Charter restrictions
- Record keeping requirements
- Complex tax rules
Help Me Choose
- I plan to own and operate this business myself
- Sole proprietorship
- Corporation
- This will be a small business without a lot of risk
- Sole proprietorship
- Partnership
- I plan to share ownership and management responsibilities with others
- Partnership
- Corporation
- This will be a business that has employees and equipment so I would like to limit risk.
- Corporation
- I would like to seek investment from other people
- Corporation
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