- As a sole proprietorship, ownership of the company is controlled by one person. This person will usually run the daily operations and retain any profits from the business. Some of the advantages of a sole proprietorship are ease of organization, complete control of income and decisions, taxes are filed on the owner's personal tax return and the business can be shut down easily by the owner. Some of the disadvantages of sole proprietorships are limited funds to expand and difficulty attracting and retaining top talent. Personal assets are also open to attack, as there is unlimited liability for any debts incurred by the business.
- In a partnership, there are two or more owners of the business. With multiple people, some of the obvious advantages are increased access to funds and support with the daily operations of the business. Partnerships can sometimes fall apart due to disagreement on the organizational direction the company is taking or decisions that are being made. With any partnership, it is important and necessary to have a partnership agreement in place before the business is started. The agreement should cover each partner's responsibilities and investments, dispute resolution and dissolution of the partnership.
- A corporation is under the close watch of federal, state and local agencies. Chartered by the state where the company headquarters are located, a corporation is recognized as its own entity. Shareholders are considered the owners of the corporation and have limited liability protection to the extent of their stock ownership. The corporation can be sued; however, stockholders cannot be individually sued, so some level of personal protection is offered.
- A limited liability company, or LLC, acts to provide the protection features of organizing as a corporation, such as limited liability, and the adaptability of partnerships. This mix of protection and flexibility is relatively new and there are some limits. To operate as an LLC, you can't have more than two of the typical four operating characteristics of a corporation. These include limited liability, management centralization, free transfer of ownership interests and continuity of life.
- Before making a final decision on your business structure, it's important to know where you want to be down the road. Be specific and set goals for your business. It may be that starting out as a sole proprietor is possible if you have low start-up costs and your business has limited exposure to risk. However, in businesses with increased risk, it is worth considering other forms of organizational structure.
