What is a form of business ownership that combines the benefits of a corporation with those of proprietorships and partnerships?

Businesses can be organized a number of different ways. Each has its advantages and disadvantages. Some are relatively simple, while others are more complex. Take a look at each business structure to learn more about it. You may find it helpful to talk with small-business consultants, including an accountant and an attorney, to determine which structure is best for your current and future needs. The four most common types of business structures include the following:

• Sole Proprietorship
• Partnership
• Corporation (Inc.)
• Limited Liability Corporation (LLC)

Sole Proprietorship

A sole proprietorship is the most common type of small business. The business has one owner, who is responsible for all aspects of the business and receives all the profits from the business. Legally, the owner IS the business. Income and expenses are reported on the regular individual tax forms, such as the Federal 1040.

Advantages of a sole proprietorship include the following:

• It’s relatively easy and inexpensive to set up or dissolve
• The owner has total control over the business
• The owner receives all the income and determines what happens to it

Disadvantages of a sole proprietorship include the following:

• The owner is solely responsible for any debts or liabilities incurred by the business
• Any benefits –- such as medical insurance -– may be only partially deductible
• It may be more difficult to raise additional funds from outside sources

Partnership

A partnership is similar to a sole proprietorship, except the business has 2 or more owners. These owners are responsible for all aspects of the business and receive all the profits from the business. Legally, the owners ARE the business. Income and expenses are reported via the regular individual income tax forms, such as the Federal 1040.

Partnerships can be set up in several ways:

• General Partnership: An agreement among the partners determines how to divide responsibility for management, liability, profits, and loss among the partners.
• Limited Partnership: Most of the partners have limited input and liability for operation of the business.
• Joint Venture: A partnership for a single project or for a limited time.

Advantages of a partnership include the following:

• It’s relatively easy and inexpensive to set up or dissolve
• The owners have total control over the business
• The owners receive all the income and determine what happens to it
• It may be easier to raise additional funds from outside sources than for a sole proprietorship

Disadvantages of a partnership include the following:

• The owners are jointly responsible for any debts or liabilities incurred by the business
• Each owner is legally responsible for the actions of the other partners
• Any benefits –- such as medical insurance -– may be only partially deductible from tax returns
• Disagreements about any aspect of the business may occur
• The partnership may dissolve if one partner leaves or dies

Corporation

A corporation is considered a separate, legal entity and is usually chartered by the state in which it is based. The business is separate from those who own it. The corporation is responsible for all aspects of the business and receives all the profits from the business. The owners are shareholders, receiving dividends from any profits earned by the business. They elect a board of directors to oversee the business.

In most cases, corporations are set up as “C” or “regular” corporations. In some cases, a corporation is set up as a “Subchapter S” corporation. This allows shareholders some flexibility in how corporate earnings, profits, and wages are classified, potentially lowering the amount of payroll taxes. A Subchapter S corporation functions much like a partnership.

Advantages of a corporation include the following:

• Shareholders have limited legal liability for the actions and debts of the company
• Employee benefits are deductible from taxes
• It may be easier to raise additional funds from outside sources through the sale of stock
• The corporation does not dissolve when owners change

Disadvantages of a corporation include the following:

• A corporation is more difficult and expensive to start
• Corporations may be more closely monitored by a variety of local, state, and federal agencies
• Dividends paid to shareholders aren’t tax deductible to the corporation; overall taxes may be higher, as shareholders also must pay taxes on the dividends.

Limited Liability Company (LLC)

A limited liability company combines elements of both a partnership and a corporation. An LLC, therefore, offers limited liability for the owners yet provides the operational and tax flexibility of a partnership. When the LLC is created, a time limit is established for the duration of the company. This limit can be extended upon agreement of the members.

In order to be taxed as a partnership rather than a corporation, an LLC must have no more than 2 of the following 4 characteristics of regular corporations:

• The life of the business is continuous
• Liability is limited to the amount of assets
• Management is centralized
• Ownership may be transferred freely

Advantages of an LLC include the following:

• Owners have some limited legal liability for the actions and debts of the company
• The business has more flexibility in its operations than a corporation
• Income is reported via individual income tax forms such as the Federal 1040

Disadvantages of an LLC include the following:

• An LLC can be complicated to create and requires a more formal agreement than a partnership
• If the LLC has more than 2 of the 4 characteristics of a corporation stated above, then it will be treated as a corporation for tax purposes, potentially resulting in a higher tax burden
• The LLC dissolves if owners do not agree to extend the life beyond the expiration date

What business type combines the benefits of a corporation and a general partnership?

What are the 4 forms of ownership?

What are the 4 types of entities?

What are types of business ownership?