The first question that many ask themselves when they are deciding to start a company is, what type of entity should the company be? When deciding what entity to form under advantages and disadvantages are a major influence in what the owners decide. Another characteristic that plays a large part into deciding what entity should be chosen is the number of owners, as well as how the company wants to address the issue of liability.
Sole proprietorships are the most common form of business organizations in the United States. One reason as to why they are the most common is because they are very appealing to owners based on the ease of formation, which can be considered to be less stressful for the owners. Another upside to forming a sole proprietorship …show more content…
When owners file taxes they can actually report their share of net business losses or profits. Limited partnerships allow liability to be limited for both parties, which is beneficial if there is a lawsuit. By having limited liability the limited partner is only liable for capital contributed to the business, and their personal assets cannot be seized by creditors for costs the company potentially still owes. Limited partners will also be able to share in profits and losses without having to contribute time and effort that is required to maintain the business. The profits and losses generated are passed through the business to the partners, who are then taxed on personal income tax returns.
A main disadvantage that is present through both types of partnerships is based on the fact that with more people present there will be more opinions present, which can be viewed as a double-edged sword. When disagreements come to the forefront there can be heated arguments, but dividing authority up among the members ensues that one person does not simply “run wild” with their decision. Authority being divided among the members allows more fair representation to be made in regards to …show more content…
Not only is there additional paperwork that is required when forming the company, but also in dissolution that can be viewed as a tedious task, as well as additional procedures that must be followed correctly in order to properly dissolve. Taxes for the corporation must be filed as a separate tax entity, and double taxation is also present, which could be unappealing to some. When in a corporation there are rules and formalities that must be followed when organizing and running, which some people may not want to adhere to. An additional disadvantage to the company would be the shareholders who own significant amounts of stock in the company can have a dominant voice in how the company is managed, and their personal opinions could potentially overtake the opinions of those that own less stock in the company.
Following a c corporation there is the s corporation. S corporations can be formed in order to avoid income taxes at a corporate level to avoid double taxation, unlike the c corporation. A similar advantage to the c corporation that is present with the s corporation is that shareholders are not personally liable for debts of the company, which releases them from any obligations to repay debt or outstanding funds if the company begins to fail, however the shareholder would still lose
Sole proprietorships are the most common form of business organizations in the United States. One reason as to why they are the most common is because they are very appealing to owners based on the ease of formation, which can be considered to be less stressful for the owners. Another upside to forming a sole proprietorship …show more content…
When owners file taxes they can actually report their share of net business losses or profits. Limited partnerships allow liability to be limited for both parties, which is beneficial if there is a lawsuit. By having limited liability the limited partner is only liable for capital contributed to the business, and their personal assets cannot be seized by creditors for costs the company potentially still owes. Limited partners will also be able to share in profits and losses without having to contribute time and effort that is required to maintain the business. The profits and losses generated are passed through the business to the partners, who are then taxed on personal income tax returns.
A main disadvantage that is present through both types of partnerships is based on the fact that with more people present there will be more opinions present, which can be viewed as a double-edged sword. When disagreements come to the forefront there can be heated arguments, but dividing authority up among the members ensues that one person does not simply “run wild” with their decision. Authority being divided among the members allows more fair representation to be made in regards to …show more content…
Not only is there additional paperwork that is required when forming the company, but also in dissolution that can be viewed as a tedious task, as well as additional procedures that must be followed correctly in order to properly dissolve. Taxes for the corporation must be filed as a separate tax entity, and double taxation is also present, which could be unappealing to some. When in a corporation there are rules and formalities that must be followed when organizing and running, which some people may not want to adhere to. An additional disadvantage to the company would be the shareholders who own significant amounts of stock in the company can have a dominant voice in how the company is managed, and their personal opinions could potentially overtake the opinions of those that own less stock in the company.
Following a c corporation there is the s corporation. S corporations can be formed in order to avoid income taxes at a corporate level to avoid double taxation, unlike the c corporation. A similar advantage to the c corporation that is present with the s corporation is that shareholders are not personally liable for debts of the company, which releases them from any obligations to repay debt or outstanding funds if the company begins to fail, however the shareholder would still lose