Business Structures: Advantages and Disadvantages
Starting a business can be challenging for individuals. That individual will have to decide which business structure will be right for their business and develop a solid business plan from that structure. There are many business structures available to new business owners, there is sole proprietorship, partnership, limited liability company and corporation. This paper will identify each structure and list the advantages and disadvantages of each structure.
Sole proprietorship has no other owners to divide profits with, which allows a sole proprietor to use company ...view middle of the document...
A disadvantage just like sole proprietorship, a partnership offers no personal asset protection for partners of the business. In some cases a partner can be held liable for the negligent acts of another partner within the business. If the partnerships business assets do not cover an obligation, a creditor may pursue a partners personal assets as compensation for the business debt.
Limited Liability Company
A limited liability company is a mixture business structure that provides members with limited liability protection from company debts and obligations. LLC can be started with one person as a member, not like partnerships which require at least two people to get the business started. Members of an LLC are able to divide company profits in any manner, in spite of ownership in the company. This flexibility allows an LLC to allocate profits and losses to the greatest tax benefit of the company’s members. The major disadvantage for having an LLC is filing documents with the secretary of state. Also that business owner will have to draft an operating agreement that servers as the agreement among the members which describes all business affairs of the LLC and plus the owners will have to pay a yearly fee to renew the LLC and file certain paperwork yearly.
Corporations provide shareholders, directors and officers limited liability protection for any of the companies obligations. A shareholder’s liability for company...