.Your choice of whether your business should be a proprietorship, a partnership or a corporation can be important for many reasons. Aside from being necessary for government reporting and tax purposes, this can enable your business to operate more efficiently.
Since each legal form has its own unique characteristics, your goal is to choose the form that works best for you.
Sole Proprietorship
Advantages
- You’re the boss.
- It’s easy to get started.
- You keep all profits.
- Income from business is taxed as personal income.
- You can discontinue your business at will.
Disadvantages
- You assume unlimited liability.
- The amount of investment capital you can raise is limited.
- You need to be a generalist. Retaining high-caliber employees is difficult.
- The life of the business is dependent on the owner’s.
Partnership
Advantages
- Two heads are better than one.
- It’s easy to get started.
- More investment capital is available.
- Partners pay only personal income tax.
- High-caliber employees can be made partners.
Disadvantages
- Partners have unlimited liability.
- Partners must share all profits.
- The partners may disagree.
- The life of the business is limited.
Corporation
Advantages
- Stockholders have limited liability.
- Corporations can raise the most investment capital.
- Corporations have unlimited life.
- Ownership is easily transferable.
- Corporations utilize specialists.Disadvantages
Disadvantages
- Corporations are taxed twice.
- Corporations must pay capital stock tax.
- Starting a corporation is expensive.
- Corporations are closely regulated by government agencies.
Source: Choosing Your Legal Structure