Business Structure Advice
FIN/571
Business Structure Advice
Mr. John Owner,
In response to your email regarding starting your business there are three main forms of business structures, which are Sole Proprietorships, Corporations (S Corp, LLC) and Partnerships. The structure of these businesses differentiate based on liability, tax implications, and the type of business being evaluated when determining what structure to use. This response will also cover the disadvantages and advantages of these types of business structures to help in your decision process.
A sole proprietorship is the simplest and most common structure chosen in starting a business. It is an unincorporated business, owned and run by one individual, who is entitled to all profits and are responsible for all business’s debts, losses and liabilities. The advantages are that it is the simplest and least expensive business structure to establish; you have complete control of the business; and your business is not taxed separately and you have the lowest tax rates. The disadvantages are that there is unlimited personal liability where you can be held personally liable for the debts and obligations of the business; it is hard to raise money; and financial institutions are hesitant to lend to a sole proprietorship because lack of credibility when it comes to repayment if the business fails. Business income is taxed as personal income and it is your responsibility to withhold and pay all income taxes (U.S. Small Business Administration, 2014).
A corporation is owned by more than one person, and is generally suited for large businesses. The corporation is financially responsible for the actions and obligations of the business, not the owners. The advantages are limited liability; protection of personal assets; and it provides the greatest access to sources of funds. The disadvantages of a corporation are its difficult and expensive to start; shared control; and double taxation. Double...