Sole Proprietorship

SOLE PROPRIETORSHIP is a business organization where the owner is a single person and is solely responsible for control of the business. While the owner can hire employees (and managers), it is ultimately the owner that is in charge. One important characteristic of a Sole Proprietorship is that, from a legal and tax perspective, there is no real distinction between the owner and the business. The owner is liable for (legally and financially) for the actions and liabilities of the business. Also, the income is only taxed once (as opposed to being taxed at both the business and personal level).

A PARTNERSHIP is structured much like a sole proprietorship except that now there are multiple owners. Again, there is no distinction between the owners and the business as they are liable (legally and financially) for the actions and liabilities of the business. Also, like in a sole proprietorship, the income is only taxed once. In

Practice, there are different types of partnerships (limited vs. general). The type of partnership described here is general. Limited partners, the partners can lose only the amount of their investment in the partnership. This type also common in real estate, oil, equipment leasing ventures.  Limited liability partnership (LLP),

A CORPORATION is a firm owned by many individuals (stockholders) who in most cases have little input in operating the firm. A fundamental component of the corporate form of ownership is the separation of ownership from the process of managing the firm. The owners (stockholders) elect a board of directors who are responsible for hiring management and overseeing the direction of the firm's operations. While sole proprietorships account for the bulk of businesses (by number of tax returns), corporations account for the bulk of business activity in the US (both in terms of revenues and profits). According to the Census Bureau for 2008, sole proprietorships account for approximately 72% of businesses (vs. 10% for partnerships and 18% for corporations). On a revenue (profit) basis the numbers are 4% (16%), 15% (27%), and 81% (58%) respectively...note that profit proportions are going to be most volatile and vary significantly from year to year (especially in 2008-09 as these were at the peak of a financial crisis in the US. Because most large firms are organized as corporations, accounting for the bulk of business activity, and corporations are more complex. ADVANTAGES OF CORPORATIONS

                􏰀  Limited Liability -- Due to the separation between business and the owners, stockholders are not liable for anything beyond their initial investment. When buying a share of stock you become an owner in a corporation. You can lose your entire initial investment (if the company goes bankrupt), but nothing beyond that. Alternatively in a partnership or sole proprietorship, all debts incurred by the business are the responsibility of the owner(s).

                􏰀  Easier access to capital -- Corporations have access to the capital markets by issuing shares of stock or issuing bonds. This makes it easier to raise large sums of money for expansion or a multi-year, profitless startup that is anticipated to generatesignificantprofitsafterthestartupstage. Soleproprietorshipsand partnerships find it much more difficult to raise significant amounts of capital.

                􏰀  Ability to Diversify Ownership -- Corporations allow individuals to own multiple businesses without having expertise in all (or even any) of these businesses. This allows me to reduce my risk and take advantage of opportunities that would not be accessible without corporations. The chance of me owning multiple businesses in different industries as a sole proprietor is unrealistic(duetotime,capital,andexpertiseissues). Alternatively,itiseasy for me to invest $5000 into a mutual fund and be a part owner in hundreds of businesses.

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• DISADVANTAGES

                􏰀  Higher start-up costs and higher levels of regulation -- Because there is a separation between the owners and the business, there are higher regulatory costs associated with keeping owners informed about business operations. Publicly traded corporations must follow SEC guidelines pertaining to registration and reporting (such as audited annual and quarterly reports and Sarbanes-Oxley regulations) that are costly. These costs lower the profitability of the company due to higher expenses, but may be necessary to protect shareholders.