Question

You decide to start a business. Distinguish between sole proprietorships and corporations on the basis of each of the following

1. extent of government regulation

2. transferability of the business

3.  termination of the business

Answer 1

1.Extent of Government Regulations

Sole Proprietorship face less government regulations as compared to Corporations. Sole proprietorships begin automatically when a single business owner decides to open a business. There are no documents to file to begin a sole proprietorship.

In case of Corporation Businesses are required to file articles of incorporation, also known as a certificate of formation, to legally form a corporation in any state. Each state charges a fee, which varies from state to state, to file articles of incorporation. In addition, corporations are required to register with each state where the company intends to make business transactions. This requirement is not imposed on sole proprietorships.

2. Transferability of business

A sole proprietorship is tied to its owner. Legally they are the same. Since the sole proprietor owns all assets of the business, he is free to sell them. The sale of a sole proprietorship is simply the sale of its assets. There are no registration requirements to transfer the business; however, some legal aspects of the transfer deserve consideration.

In case of Corporation transfer of ownership rights is easy in a public company, the stock can be easily transferred in part or total at the discretion of the stockholder. The stockholder wishing to transfer (sell) stock does not require the approval of the other stockholders to sell the stock. Similarly, a person or an entity wishing to purchase stock in a corporation does not require the approval of the corporation or its existing stockholders before purchasing the stock.

3. Termination of Business

A sole proprietorship is entirely dependent on its owner. The death, retirement, bankruptcy. insanity, imprisonment etc will have an effect on the sole proprietorship. In such situations, the proprietorship will cease to exist and the business will come to an end.

On the other hand a Corporation has unlimited life.As a corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation. Its charter may limit the corporation's life although the corporation may continue if the charter is extended