Question

Compare the three types of legal structure: proprietorship, partnership and corporation.

Answer 1

1. Proprietorships- Basically proprietorship is not a legal entity, and refers to a business which is solely owned by one person. This one person is personally liable for the debts and expenses of this type of business.
They are advantageous to owners because they are simple to form, and have nominal costs compared to other types of ownership.
However proprietorships are problematic because the owner’s personal assets can be reached by creditors for business matters.
2. Partnership - This is a business owned by two or more people, who share equally in profits and losses. Partnerships involve a number of different legal considerations that you should familiarise yourself with.
Also, there are different types of partnerships (such as general partnerships, limited partnerships, joint ventures).
3. Corporations- These are separate legal entities that are owned by the shareholders. Corporations are much more complex and are typically used by larger businesses.
They have more costly administrative fees and more complicated tax and legal requirements. Corporations are afforded the opportunity to sell ownership shares through stock offerings.
There are also different classifications of Corporations (such as C-corps, S-corps, Closely Held Corps.)