Business Forms

Business Forms

Introduction

According to Madura (2008) to make a business has to select the legal structure for your business. There are three types of businesses that are most commonly used in the market: Sole Proprietorship, Partnership, and the Corporation or the company.

Sole Proprietorship

Mancuso (2009) Sole proprietorship is a type of business organization in which an individual own the business, operates all the activities related to the business, introduce his own capital, used in own skill and intelligence to run the business and responsible all risks and profit of the business.

Advantages of Sole Proprietorship

One Owner

According to ECF (2012) the advantage offered by the sole proprietorship over other business forms is that since there is only one owner, the owner need not consider anyone else to make decisions. As you are the owner, you have complete control of the company. This form works very well for a small company that does not incur any significant liabilities and does not require a lot of costs to stay.

No Need to fill out legal requirements

The sole proprietorship has no such requirement. No legal formalities to setup the sole proprietorship business. This type of business starts anytime and anywhere without legal formalities by individual.

Taxes

Another major advantage of sole proprietorship is the way they treat taxes. The sole proprietor does not need to file corporate income tax or any other complicated tax form. The business tax is passed to the owner, and he pays taxes as income or regular salary (ECF, 2012).

Disadvantages of a sole proprietorship

Unlimited Financial Liability

Madura (2008) the main disadvantage of a sole owner is the owner's responsibility for the company. Unlike corporations and limited liability entities, the sole proprietorship does not have limited liability. Limited liability protects the assets of the owner against a situation where the business harm or financial loss to an individual. For example, you have a restaurant corporation and a pattern becomes ill with food, the employer can only claim the restaurant for its assets (and the restaurant probably have insurance) to compensate the damage suffered. The pattern cannot go after the owners of corporations to recover their damages (Mancuso, 2009).

Hard to raise funds for expansion

A second disadvantage of sole proprietorship is the difficulty it will have to raise capital, or to continue their business during hard times, or expand business. Banks and other lending institutions only lend money to a sole proprietorship based on credit, not based on your business. It will also have difficulty raising capital because you cannot sell shares to other investors.

Transfer of business

According to Hollowel (2010) the transfer of business can also cause problems. As owner decides to sell the company, the business ceases to exist. It can sell the assets of the business, but technically it will be a new and different company. The sole proprietorship also ceases to exist after you die. Set in contrast to a corporation, where it is relatively easy to transfer ownership by selling shares, and the corporation continues to operate after his ...