Legal Business Forms and Structures - Corporations, Partnerships and Sole Proprietors.

Legal Business Forms

There are three main legal forms of business structure. You are advised to consult a professional accountant and/or lawyer before selecting a legal business form that's right for you.

1.   Sole Proprietorship
2.   Partnership
3.   Corporation

Below summerizes several advantages and disadvantages of each legal business form.

Factors to Consider Sole Proprietor Partnership Corporation
Legal Formalities simple & fast more complex more complex
Cost to Obtain low medium to high medium to high
Ownership of Assets one owner (total) partners (limited to their contribution) shareholders (limited to # of shares)
Financial Responsibility unlimited unlimited limited to shareholder's investment
Control one owner shared between partners shareholders (vote per share)
Initial Investment owner's investment pooled investment of partners according to the # of shareholders
External Financing Limited to owners borrowing capacity Limited to partners borrowing capacity stock & bond issues; debt capacity
Tax Implications (1) taxed at owner's tax rate partner's tax rate on their share of profits low rate on company income, but dividends paid to shareholders are taxable.
Tax Implications (2) losses deductible from owner's taxable income losses deductible from income of partners losses deductible from taxable company income


Categories: General