Business Forms: Advantages and Disadvantages

Sole Proprietorship

Advantages of a sole proprietorship

  1. Ease of formation since there is less as it involves less complication.
  2. It enjoys tax benefits since it requires no tax report
  3. Decision making: Single sole owner is the manager of the business; he exercises control over all business resolutions.

Disadvantages of a sole proprietorship

  1. The owner is liable for any losses or debts from the business.
  2. The owner has to pay self-employment taxes. Additionally, certain tax benefits are not deductible like health insurance.
  3. Difficulty in raising capital: It does not issue money-generating investments like corporations.

Summary

A sole proprietorship is a type of business unit owned and run by one individual and in which there is no legal difference between the proprietor and the business. I will start a sole proprietorship that deals with photography. My photography business will help taking photographs at weddings, anniversary, and birthday parties. The only legal requirement is to ensure that the business deals with legal products and has enough capital to runs its activities (Cheesema, 2013). This business will offer clients portal convenient portable services, that is, availing services wherever needed by the client. According to the law, both the sole proprietor and the business are the same, hence, I will be responsible for any damage caused by the business. To ensure that the business does not counter any problem, I will have to work long hours just to satisfy the expectation of the clients. Although it is easier to form, I have to file Individual Income Tax Return and Employer’s Quarterly Federal Tax Return with the state’s office.

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Partnership

Advantages of partnership

  1. More capital for expansion of the business is available since every member contributes a given amount of money.
  2. Since the formation requires more than one person, views of members combined may make a sensible decision.
  3. It allows the provision of moral support, which creates an atmosphere for brainstorming.

Disadvantages of partnership

  1. Members have unlimited liability
  2. Members’ disagreement may lead to its dissolution.
  3. There is no continuity of existence in case a partner dies.

Summary

Its structure does not generally incur any tax on profits before its distribution to the partners. The legal requirement to start this form of business includes obtaining Federal Employer Identification Number and registration of Fictitious Business Name. in my investment, I will sign a partnership deed with colleagues to start a partnership that deals in the provision of medical appliances. The business will distribute medical equipment to local dispensaries and other health facilities. The amount of pay per partner will define the quantity of share each person will have in the business. We will also encourage quasi members to join in a bid to ensure the growth and solicitation of enough capital to run the business. We will split both the proceeds and losses.

Limited Liability Partnership

Advantages of Limited Liability Partnership

  1. It is easier to attract investors since limited partners have limited liability to business debt.
  2. Limited partners have to divide among themselves the losses and proceeds taking part in the overall management of the entity.
  3. The tax applied to members is based on an individual’s returns on income tax.

Disadvantages of limited liability partnership

  1. An individual partner can bind the entity to a formal business without the approval of the business partners only on limited provisions.
  2. Every state has its requirements for its formation.
  3. The state has to file its certificate before it begins operating.

Summary

A limited liability partnership (LLP) is a special type of business structure protecting individual partners against the negligence of other partners within a similar business entity (Cheesema, 2013). This partnership usually involves members of a similar profession in many cases. Before the inception of LLP, it is important to note some legal requirements like federal employer identification number, name of the business, and a brief description of business activities. In forming LLP, I will join my General Partnership with colleagues, a Limited Partnership after drafting a partnership agreement to create more capital.

Limited Liability Company, (including the single-member LLC)

Advantages Limited Liability Company

  1. Its management structure is more flexible than cooperation.
  2. The selling of shares and the death of the owner does not affect its operation.
  3. It requires a few legal compliances during formation.

Disadvantages Limited Liability Company

  1. Since they lack a strict cooperate structure, few investors are willing to join.
  2. There are no specified roles for members leading to confusion.
  3. If a member departs or dies, then it ceases to exist.

Summary

In LLC, shareholders are not taxed as a separate business entity (Cheesema, 2013), hence, protecting the property of the investor from extra liability beyond investment. I will start LLC identified as John Electrical company as a single entity and later encourage other interested partners to join as members. LLC does not restrict membership as long as there is a shared objective. The main products from the company will include manufacturing electrical appliances like microwaves and refrigerators. The cost of these electrical appliances will be slightly cheaper compared to others to attract more customers. The major requirement to run this kind of business is a certificate of registration, permit from the local authority, and filing the company’s details with the state’s secretary.

S Corporation

Advantages of s cooperation

  1. The tax savings belong to the owners of the business and the business.
  2. Some expenses incurred by shareholders can be classified as business expenses.
  3. It safeguards the shareholders’ properties.

Disadvantages of s cooperation

  1. It involves a long and tedious formation process.
  2. Either any mistake noticed in the file or notification may lead to the closure of the business’s position.
  3. It is less flexible or quite bureaucratic in apportioning the losses and revenues.

Summary

The shareholders have the same protection from liability as shareholders of a C corporation. My business idea, in this case, will be the provision of services dealing with waste management. The business will corporate with Environmental Protection Agency (EPA) to ensure sustainability in waste management and the provision of a cleaner environment for the citizens. My S Corporation will provide better waste management techniques through the provision of waste bags, means of waste transportation, and educating the locals on the best ways to handle wastes. Since it is an S Corporation, the company will offer waste management services at lower rates while encouraging waste charge criteria based on the amount generated. This will help cover waste management problems and effects associated with it. The corporation must undergo the normal process of registration and receive a certificate of the corporation. Before registration, the company must be a domestic corporation with shareholders not exceeding 100.

Franchise

Advantages of Franchise

  1. It gives the individuality of small business ownership with profit from the big corporate set-up.
  2. The franchisee covers all the costs of setting up the business.
  3. They have a reputable image and status.

Disadvantages of Franchise

  1. The franchisee and the franchisor share the profits.
  2. The agreements dictate how its management.
  3. Poor performances by others may affect one’s franchise’s image and status.

Summary

In a franchise form of business, the franchisor provides a developed method of conducting business, continuing guidance, and assistance in return for periodic fee payment (Cheesema, 2013). In my business plan, I will franchise my company that deals in the production of soft drinks with Coca Cola company to gain popularity and brand in the competitive market. My company that mainly serves the local market, will gain international public relations. This will also help my company gain international recognition. Therefore, the distribution of my products will be the responsibility of the franchisee. It will be the responsibility of the franchisee to carry out the daily activities of my business according to the agreement between us.

Corporation

Advantages of Corporation

  1. Owners have limited liability towards the creditors.
  2. An easier method of raising capital through selling shares.
  3. It is easier to raise capital through stock markets.

Disadvantages of Corporation

  1. The process of establishment is very complex.
  2. Maintenance of business records is crucial for its success.
  3. They require a higher cost to run its activities.

Summary

Most business owners form corporations to protect themselves against financial and legal liabilities. I will start a corporation that deals brings together all those in the health profession in a bid to curb the escalating level of unregistered and qualified health experts. My corporation will ensure those practicing health-related services qualify for that particular job. For recognition by the state, the corporation will have to undergo the normal registration process as an entity from its (Cheesema, 2013). The advantage of a corporation is that an individual is not liable for the debt or loss and the disadvantage is the complexity involved in the operation of the cooperation. For its operation, it will require a name and filing of the article incorporation with the relevant authority.

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Reference

Cheesema, H. R. (2013). Business law: Legal environment, online commerce, business ethics, and international issues (8th ed.). Upper Saddle River, NJ: Prentice Hall.

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