Sole Proprietorship

Forms of Business Organization

A sole proprietorship is a business owned and operated by a single individual.

Key Facts

  1. Sole Proprietorship:
  • Definition: A business owned and operated by a single individual.
  • Characteristics:
    • The owner has complete control over the business.
    • Easy and inexpensive to set up and maintain.
    • The owner is personally liable for all debts and obligations of the business.
  • Example: A freelance graphic designer running their own business.
  1. Partnership:
  • Definition: A business owned by two or more individuals.
  • Characteristics:
    • Partners share the profits, losses, and responsibilities of the business.
    • Partnerships can be general (equal liability) or limited (limited liability for some partners).
    • More resources and expertise can be pooled together.
  • Example: A law firm with multiple partners sharing the workload and profits.
  1. Corporation:
  • Definition: A legal entity separate from its owners.
  • Characteristics:
    • Owned by shareholders who elect a board of directors to oversee the business.
    • Limited liability for shareholders, protecting their personal assets.
    • More complex and expensive to set up and maintain.
  • Example: A multinational company with shareholders and a board of directors.
  1. Limited Liability Company (LLC):
  • Definition: A hybrid business structure combining features of partnerships and corporations.
  • Characteristics:
    • Owners are not personally liable for the debts of the business.
    • Offers flexibility in management and taxation.
    • More expensive and complicated to set up than sole proprietorships or partnerships.
  • Example: A small business with multiple owners seeking liability protection and tax flexibility.

Characteristics

  • The owner has complete control over the business.
  • Easy and inexpensive to set up and maintain.
  • The owner is personally liable for all debts and obligations of the business.

Example

A freelance graphic designer running their own business.

Partnership

Definition

A partnership is a business owned by two or more individuals.

Characteristics

  • Partners share the profits, losses, and responsibilities of the business.
  • Partnerships can be general (equal liability) or limited (limited liability for some partners).
  • More resources and expertise can be pooled together.

Example

A law firm with multiple partners sharing the workload and profits.

Corporation

Definition

A corporation is a legal entity separate from its owners.

Characteristics

  • Owned by shareholders who elect a board of directors to oversee the business.
  • Limited liability for shareholders, protecting their personal assets.
  • More complex and expensive to set up and maintain.

Example

A multinational company with shareholders and a board of directors.

Limited Liability Company (LLC)

Definition

A limited liability company (LLC) is a hybrid business structure combining features of partnerships and corporations.

Characteristics

  • Owners are not personally liable for the debts of the business.
  • Offers flexibility in management and taxation.
  • More expensive and complicated to set up than sole proprietorships or partnerships.

Example

A small business with multiple owners seeking liability protection and tax flexibility.

Sources

FAQs

What is a sole proprietorship?

**Answer:** A sole proprietorship is a business owned and operated by a single individual.

What are the advantages of a sole proprietorship?

**Answer:** Advantages of a sole proprietorship include ease of setup, low cost, and complete control over the business.

What are the disadvantages of a sole proprietorship?

**Answer:** Disadvantages of a sole proprietorship include personal liability for debts and limited growth potential.

What is a partnership?

**Answer:** A partnership is a business owned by two or more individuals who share profits, losses, and responsibilities.

What are the different types of partnerships?

**Answer:** There are two main types of partnerships: general partnerships and limited partnerships.

What is a corporation?

**Answer:** A corporation is a legal entity separate from its owners, offering limited liability to shareholders.

What are the advantages of a corporation?

**Answer:** Advantages of a corporation include limited liability, access to capital, and potential for growth.

What is a limited liability company (LLC)?

**Answer:** An LLC is a hybrid business structure that combines features of both partnerships and corporations, offering liability protection and flexibility.

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