Question

What factors should an entrepreneur consider before choosing a form of business ownership? Describe some key pros and cons of the following business forms of ownership: a) Sole Proprietorship b) Partnership c) Corporation d) Benefit Corp

Answer 1

Sole Proprietorship

The owner and the firm are one and the same. The owner takes all the risks and makes all business decisions. Business profit and losses are reported on the personal tax of the owner.

The benefits are easy to start a sole proprietorship and since the owner and the firm are the same, net business losses can be deducted from personal taxes. No paperwork like a corporation and no legal formalities.

The drawbacks are that the owner has unlimited liability and is personally liable for debts and other liabilities. Personal income taxes are paid on business’s net profits.

Partnerships

In partnerships, there are two or more people and like soleproprietorships, the partners reports business profit and losses on their personal tax. The pros and cons are the same as for soleproprietorship.

Corporate

A Corporate is a legal entity separate from owners. The liability of the owners are limited. Corporations enjoy tax benefits like deduction of business expenses.

There is enormous paperwork and legal formalities to be complied with for starting a corporation. Expensive fees have to paid for starting a corporation.Taxes have to be paid on profits.

Benefit corp are for-profit companies that meet certain standards of social and environmental performance, accountability and transparency.