Business Structures

How can businesses be legally organized?

Basic Structures

• Sole Proprietorship• Partnership• Corporation

Sole Proprietorship• One owner•Profits and risk are taken by only one person

Partnership•Two or more people own the business•Partners share the profit and risks •Partners may divide business how they decide

Corporation•Many owners•Owners hold stock or shares •Investors may or may not “work” for the company

Sole Proprietorship

Advantages• Keep all profits• Manage without approval

from others• Quick decisions can be

made• Freedom to operate

business as you want• Single tax

Disadvantages• Risks are all yours • Unlimited liability (you are

responsible for all debt and all problems

• Personal assets are at risk• Business and owner are

seen as one and the same• Difficult to raise money to

start

Partnership

Advantages• Others can help with

decision making• Each partner can do what

they are good at to help the business

• Risk is shared• Liability is shared• Easier to raise money to

start

Disadvantages• Must make decisions with

others approval• Disagreements can happen• Profits must be shared• Less freedom to manage it

as YOU want• More complicated legally to

set up

Corporation

Advantages• Easy to raise money by

selling stock• Limited liability (you only

risk what you invest)• Personal assets not at risk• Easy to transfer ownership

Disadvantages• Difficult to manage the

company as YOU wish• Many people to answer to• Legally complicated to set

up• Profits shared by many• Double tax