Sole proprietorship: A sole proprietorship is a business owned by one person.

The owner may operate on his or her own or may employ others. The owner of the business has total and unlimited personal liability of the debts incurred by the business.

Partnership: A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

Corporation: A business corporation is a for-profit, limited liability entity that has a separate legal personality from its members. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff.

Cooperative: Often referred to as a "co-op business" or "co-op", a cooperative is a for-profit, limited liability entity that differs from a corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

The Advantages and Disadvantages of the Different Types of Business Entities by Leigh Richards, Demand Media There are numerous legal forms of businesses that can be used when running a company. The format of a business should be carefully considered before creating a business entity, as each type of entity has certain advantages and disadvantages. The primary considerations for determining the appropriate business structure are taxation and liability, although there are other considerations as well. Sole Proprietorship and Partnership A sole proprietorship is a company owned entirely by a single individual. A partnership is essentially a sole proprietorship with more than one owner. The benefit of sole proprietorships and partnerships is that they are very simple to form and do not require any formalities with the state's secretary of state. Additionally, sole proprietorships and partnerships have their profits taxed only once, as income is accrued directly to the owners rather than at the business level. The major disadvantage of sole proprietorships and partnerships is that the owners are liable for all debts and civil actions of the company.

Limited Liability Company Limited liability companies (LLCs) are fairly recent developments in the business world. LLCs combine the pass-through earning structure of a partnership or sole proprietorship with the limited liability of a corporation. Limited liability companies are also fairly easy to create. The most significant downside to LLCs is that it can be difficult to transition the company to a publicly traded business if the owners wish to have an initial public offering of stock.

C Corporation A C corporation is the typical business structure for very large companies. C corporations spread ownership among stockholders. While these stockholders have limited liability and are shielded from the debt and civil liabilities of the corporation, they face double-taxation, as the corporation's profits are taxed at the company level and once again at the shareholder level.

S Corporation An S corporation, like an LLC, combines the benefits of a partnership with those of a C corporation. An S corporation gives its owners limited liability and has special tax treatment that avoids double-taxation. However, there are rules restricting how many shareholders there may be for a company to remain an S corporation. If a company has more than 100 shareholders, it loses its S corporation status.

Sole Traders Advantages Benefits of operating alone are: all profits are taken by the owner. Consultations are not necessary for decision making and the legal requirements for start-up is very simple as the proprietor only needs to submit the registration documents for the business. Disadvantages The sole proprietor must work for long hours resulting in little time for family. There is also limited capital to inject into the business and he alone bears all the risk of the business. He does not have limited liability and therefore if the business goes bankrupt he may lose his personal assets e.g. house and car. There is a lack of expertise in areas of business where he is not knowledgeable which may limit its success. Partnership Advantages Since more than one person is involved, more capital can be raised to inject into the business. There is more expertise and work load is shared. The risk of the business operation is also shared. Disadvantages

All partners will be affected by the action of each partner since each person represents the business. Decision making may be very slow if partners are not in agreement. There are high risks for partners who do not have limited liability. Private Limited Liability Company Advantage A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to an end if the owner dies or is very ill. This firm can access capital for expansion by selling shares. This business also has privacy as its balance sheet does not have to be published. Disadvantage The disadvantage is that they are not easy to start due to the number of legal procedures required. For the private limited liability company, shares are not easily transferable as other members must agree to have persons join the company. However, shareholders in public liability companies are not restricted to sell their shares to whomever they wish to. Public Limited Liability Company Advantages

A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to an end if the owner dies or is very ill. This firm can access capital for expansion by selling shares. Note that these advantages are similar to the private limited company. However, added advantages are that shares are easily transferrable as they may be sold to anyone on the stock market and it provides a means of investment for shareholders who buy shares at low prices and sell when stock prices rise. Disadvantage The disadvantage however, are that they are not easy to start due to the number of legal procedures required and that the large size of these businesses tend to be difficult to manage.

Advantages and Disadvantages of Business Organization Types It is important to understand the different types of business organizations types such as a sole proprietorship, partnership, and corporation. A businesss organizational structure influences issues, legal issues, financial concerns, and personal concerns. A Sole Proprietorship is a business with one owner who operates the business on his or her own or employ employees. It is the simplest and the most numerous form of business organization in the United States, however it is dangerous as the sole proprietor has total and unlimited liability. Self contractor is one example of a sole proprietorship. Advantages of a sole proprietorship 1. Simplest and least expensive form of business to establish and to dissolve. 2. The owner is making all the decisions and controlling the whole operations. 3. All profit flows directly to the owner. 4. It is subject to fewer regulations. 5. It has tax advantage: any income is declared as the owners personal income tax return, therefore there are no corporate income taxes. Disadvantages of a sole proprietorship 1. The owner is responsible for all the obligations of the business. 2. It is difficult to raise capital: it can only use the owners personal saving and consumer loans. A Partnership is a business with two or more individuals owns and manages the business. Partners share the unlimited liabilities of the business and operate the business together. There are three classification of partnerships: general partnership (partner divide responsibility, liability and profit or loss according to their agreement), limited partnership (in additional at least one general partner, there are one or more limited partner who have limited liability to the extent of their investment), and limited liability partnership (all of the partners have limited liability of the business debts; it has no general partners). Advantages of a partnership 1. It is relatively easy to form but considerable amount of time should be invested in developing the partnership agreement. 2. It is easier to raise capital compared to a sole proprietorship as there are more than one investor. 3. Any income is declared as the partners personal income tax returns, therefore there are no corporate income taxes.

4. Employees may be motivated and attracted to the business by the inventive to become a partner Disadvantages of a partnership 1. Partners are jointly responsible for all the obligations of the business. 2. Partners must make decision together therefore disputes or conflicts may occur. It may eventually lead to dissolving the partnership. A corporation is a limited liability entity doing business owned by multiple shareholders and is overseen by a board of directors elected by the shareholders. It is distinct from its owners and can borrow money, enter into contracts, pay taxes and be sued. The shareholders gain from the profit through dividend or appreciation of the stocks but are not responsible for the companys debts. Advantages of a corporation 1. It can raise additional funds through the sale of stock. 2. Shareholders can easily transfer the ownership by selling their stock. 3. Individual owner liability is limited to the value of stock they are holding in the corporation. Disadvantages of a corporation 1. It is restricted by more regulations, more closely monitored by governmental agencies and are more costly to incorporate than other forms of the organizations. 2. Profit of the business is taxed by the corporate tax rate. Dividends paid to shareholders are not deductible from corporate income, so this part of income is taxed twice as the shareholders must declare dividends as their personal income and pay personal income taxes too.

What are the common forms of businesses, and what structure makes the most sense for your new small business? Before you consult with a tax advisor or consultant you may want to do some research yourself. One of your first decisions as a business owner is what form of business you choose. This decision is very important because it can affect how much you pay in taxes, the amount of paperwork your business is required to do, the personal liability you face and your ability to borrow money. Business formation is controlled by the law of the state where your business is organized. The most common forms of businesses are:

Sole Proprietorships Partnerships Corporations Limited Liability Companies (LLC) Subchapter S Corporations (S Corporations) While state law controls the formation of your business, federal tax law controls how your business is taxed. All businesses must file an annual return. The form you use depends on how your business is organized. The answer to the question "What structure makes the most sense?" depends on the individual circumstances of each business owner. One form is not necessarily better than any other. Each business owner must assess their own needs. Here is a brief look at the various business forms. Sole Proprietorship A sole proprietorship is the most common form of business organization. It's easy to form and offers complete control to the owner. But the business owner is also personally liable for all financial obligations and debts of the business. As a sole proprietor you can operate any kind of business as long as you are the only owner. It can be full-time or part-time work. This includes operating a:

Shop or retail trade business Large company with employees Home-based business One-person consulting firm Every sole proprietor is required to keep sufficient records to comply with federal tax requirements regarding business records. Your net business income or loss is combined with your other income (other income could be your salary if you also work for someone else, or your investments) and deductions and taxed at individual rates on your personal tax return. Sole proprietors do not have taxes withheld from their business income so you may need to make quarterly estimated tax payments. You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Partnership A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. Each partner reports his share of the partnership net profit or loss on his personal tax return. Partners must report their share of partnership income even if a distribution is not made. Partners are not employees of the partnership and so taxes are not withheld from any distributions. Like sole proprietors, they generally need to make quarterly estimated tax payments if they expect to make a profit. Corporation A corporate structure is more complex than other business structures. It requires complying with more regulations and tax requirements. Corporations are formed under the laws of each state and are subject to corporate income tax at the federal and state level. In addition, any earnings distributed to shareholders in the form of dividends are taxed at the individual tax rates on their personal annual tax returns. The corporation becomes an entity that handles the responsibilities of the business. Like a person, the corporation can be taxed and can be held legally liable for its actions. If you organize your business as a corporation, you are generally not personally liable for the debts of the

corporation. (Exceptions may exist under state law.) Limited Liability Company A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. Most states also permit "single member" LLCs, those having only one owner. Subchapter S Corporation The Subchapter S Corporation is a variation of the standard corporation. The S corporation allows income or losses to be passed through to individual tax returns, similar to a partnership. Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income.

The Basics of Business Structure Sole proprietorships, partnerships, LLCs and corporations--learn the differences and which one fits your company best. The most common forms of business enterprises in use in the United States are the sole proprietorship, general partnership, limited liability company (LLC), and corporation. Each form has advantages and disadvantages in complexity, ease of setup, cost, liability protection, periodic reporting requirements, operating complexity, and taxation. Also, some business forms have subclasses, such as the C corporation, S corporation, and professional corporation. Choosing the right business form requires a delicate balancing of competing considerations. Learn how to select, plan, and organize the business form that is a perfect fit for you.

The Sole Proprietorship The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a natural person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as Nancy's Nail Salon. The fictitious name is simply a trade name--it does not create a legal entity separate from the sole proprietor owner.

The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietorship is ready for business. A distinct disadvantage, however, is that the owner of a sole proprietorship remains personally liable for all the business's debts. So, if a sole proprietor business runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are successful, the owner will have to pay the business debts with his or her own money.

The owner of a sole proprietorship typically signs contracts in his or her own name, because the sole proprietorship has no separate identity under the law. The sole proprietor owner will typically have customers write checks in the owner's name, even if the business uses a fictitious name. Sole proprietorships can bring lawsuits (and can be sued) using the name of the sole proprietor owner. Many businesses begin as sole proprietorships and graduate to more complex business forms as the business develops.

Advantages of the Sole Proprietorship Owners can establish a sole proprietorship instantly, easily, and inexpensively. Sole proprietorships carry little, if any, ongoing formalities.

A sole proprietor need not pay unemployment tax on himself or herself (although he or she must pay unemployment tax on employees). Owners may freely mix business and personal assets. Disadvantages of the Sole Proprietorship Owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business. Owners cannot raise capital by selling an interest in the business. Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

The Partnership A partnership is a business form created automatically when two or more persons engage in a business enterprise for profit. Consider the following language from the Uniform Partnership Act: "The association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership." A partnership--in its various forms--offers its multiple owners flexibility and relative simplicity of organization and operation. In limited partnerships and limited liability partnerships, a partnership can even offer a degree of liability protection.

Partnerships can be formed with a handshake--and often they are. Responsible partners, however, will seek to have their partnership arrangement memorialized in a partnership agreement, preferably with the assistance of an attorney. Because partnerships can be formed so easily, partnerships are often formed accidentally through oral agreements. A partnership is formed whenever two or more persons engage jointly in business activity to pursue profit.

Don't operate a partnership without a written partnership agreement. Because of its informality and ease of formation, the partnership is the most likely business form to result in disputes and lawsuits between owners--oral partnership arrangements are usually the reason.

The cost to have an attorney draft a partnership agreement can vary between $500 and $2,000, depending on the complexity of the partnership arrangement and the experience and location of the attorney.

Advantages of the Partnership Owners can start partnerships relatively easily and inexpensively. Partnerships do not require annual meetings and require few ongoing formalities. Partnerships offer favorable taxation to most smaller businesses. Partnerships often do not have to pay minimum taxes that are required of LLCs and corporations. Disadvantages of the Partnership

All owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business (except in the cases of limited partnerships and limited liability partnerships). Individual partners bear responsibility for the actions of other partners. Poorly organized partnerships and oral partnerships can lead to disputes among owners. In my law practice, I would almost never recommend a partnership to clients. The lack of liability protection is simply not an acceptable risk that I could ever recommend that a business owner undertake. The rare occasion where I recommended a partnership was when a corporation or LLC was legally unavailable to the owners, as is the case with law partnerships, for example. Another example would be when all the owners of the partnership were already liabilityprotected entities, such as when two LLCs come together as owners of a partnership.