As business leaders deciding what business entity is appropriate there are a number of significant factors to be evaluated. It is important to consider the following: ease in establishing, startup expenses, liability, the person or persons that make the decisions for the entity, how much involvement the government will have in the business and how much it will be taxed. The decision as to what form is utilized can be critical. The following paragraphs attempt to give the pros and cons of each entity including the legal and ethical factors to help assure successful business decisions.
A business entity is formed and administered by commercial law. A business entity can be sole proprietorship, partnerships- general and limited, limited liability companies, corporations, small business corporations and cooperative. The purpose of this formation is to engage in business activities usually for the sale of a product or service. The regulations governing particular types of entity differ from jurisdiction to jurisdiction. The type of legal responsibilities depends on the type of business entity.
This paragraph will reveal the advantages and disadvantages of each of the entities. For sole proprietorship is the most common form of business organizations in the United States. It is the easiest and least expensive to establish. The owner is the boss making all decisions, keeping all the profits, and assuming all the responsibility. There are minimal legal restrictions and fewer reports to file with government agencies. The disadvantages of this entity are that capital is difficult to raise as individual resources are typically less than a resources of many partners. If the company folds unexpectedly there may have ramifications for creditors. The greatest disadvantage is unlimited liability. They owners are personally liable to the full extent of their assets for the liabilities of the business. A partnership entity has the greatest capital availability and resource for decision making support and creative activity. The disadvantages of a partnership are the unlimited liability and the divided authority for making decisions among the partners. Limited Liability Company (LLC) allows greatest flexibility for customizing the structure of the business and limits member liability. In many states an LLC may have only one member (have the benefits of sole proprietorship but limits liability). An LLC requires a comprehensive operating agreement because of the high variability and flexibility. A corporation and small corporation continues as a legal entity for as long it is in business. Shares of the corporation can be passed on to heirs. A corporation has limited liability to stockholders. Personal assets cannot be seized by creditors if the business should fail. Stockholders can sell their shares at will if there is a market. The corporation can easily expand creating greater capacity by selling more stock. The corporation is subject to government regulations. A corporate charter must be obtained from the state. The corporation must keep records for the state to review in order to keep charter. To organize corporations the cost are much higher. The corporation can only operate in the state where they have a charter. There is double taxation for corporation not small