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Advantages and Disadvantages of Sole Proprietorships, Partnerships, and Corporations

A sole proprietorship or simply a proprietorship is one of the ways to run business being the only one owner and getting all the benefits from it. An owner is also completely responsible for losses and credits the business has. There are no limits to time period an owner can run its business. He also can sell or demise his business (Sitarz, 2005).

Such type of business running has its advantage and disadvantage, of course. As for its advantages it’s possible to say that an owner can control and take decisions concerning his business as he likes. He also can sell or demise it at any time. The tax policy is less complicated than a corporate one. It does not cost too much to establish a proprietorship and the formal requirements are less complicated. But at the same time an owner is completely responsible for all credits and obligations his business has as well as for obligations which are the consequence of the employees’ actions (Piper, 2007).

Partnerships

A partnership means an official decision between two and more people to create a business including its financial and running aspects (Matlin, 2001). A general partnership presupposes that all benefits and losses should be reflected into the partners’ tax returns. All partners are similar responsible for this business and they take part into running business together, taking decisions and performing everyday operations inherent to this business. This type of business running has its own advantages and disadvantages as well which are well-seen through the shared ownership concept which is the main feature of it (Madura, 2006).

It’s easy to start such type of business running. Funds have more chances to be increased due to partner’s capacities to bring more funds at the very beginning and to be able to take more credits. It’s also possible to involve employees into running business if parties are interested in it. All together partners have more knowledge, skills and contacts and they can forward them to specific sphere for each of partners to act. Furthermore, they can support each other and create favorable conditions for stimulating creative brainstorming.

As for a partnership disadvantages it’s possible to say that running business together means to be responsible for each other’s actions as well as all debts and errors made by the other partners. One cannot take decision by himself and he should always discuss it with his partners, being open for compromises and stable providing arguments (Robinson, 1999). All the benefits gotten from running the business are shared between remembers and the question how to evaluate other partner’s efforts and time in operating it can rise. As a partnership is created for long time, the situation can change and personal disagreement can influence business relationships between partners as well. Partnership life also depends on partner’s interest or his presence. It can end up because of absence of interest or partner’s death. Moreover, this type of running business cannot introvert into a larger form (Merrifield, 2005).

Corporation

On contrary to proprietorship or a partnership a corporation is a type of business running which is reviewed by law as a separate legal entity with its own powers, responsibilities and obligations (Carpenter, 1997). Stockholders have limited responsibility and they are not involved into corporation credits and obligations.

A corporation life does not depend on interest or presence of its owner, it will exist in a case he dies, sells or transfer his stocks what, in effect, is very easy to do. It’s also possible to sale part of stocks to increase funds of corporation (Balmer, 1999). Corporation also establishes insurance and retirement funds. It has centralized management that may remain on its post even if a business is sold.

The essential disadvantage of this type of business running is the fact that profits are taxed two times as income of the corporation and as a stockholders’ personal income. Double taxation can be reduced with the help of salaries or other business operating expenses which are considered to be business expenses (Anbalagan, 1996). Double taxation was and remains the main source of tax revenues in most countries.

References

Anbalagan, R., Sharma, S., Raghuvanshi, T., Appelbaum, E., Katz, E. (1996). Corporate taxation, incumbency advantage and entry. European Economic Review, 40(9), 1817-1828.
Balmer, J.M.T., Gray, E. (1999). Corporate identity and corporate communications: creating a competitive advantage. Corporate Communications: An International Journal, 4(4), 171-177.
Carpenter, C. (1997). Corporate Communications. Journal of Vascular Access Devices, 2(4), 31-32.
Madura, J. (2006). Introduction to business. P. 160.
Matlin, S. (2001). Partnership Challenges. Compare, 31(1), 11-19.
Merrifield, B. (2005). Limited Liability Partnerships. Research-Technology Management, 48(5), 16-19.
Piper, M. (2007). Surprisingly Simple: Independent Contractor, Sole Proprietor, and LLC Taxes Explained in 100 Pages or Less. p. 56.
Robinson, R.J. (1999). Partnership. Bangladesh, 6(15), 1-6.
Sitarz, D. (2005). Sole Proprietorship: Small Business Start-up Kit. p. 39.