Sole Proprietorship | The Partnership | Limited Liability Companies | Corporations |
Advantages | |||
| One of the main advantages of Sole Proprietorship, a form of business, is that it is easy to setup. Although most local and federal governments require some form of paperwork, they can always be completed with less difficulty. The amount of documentation required is minimal, and the costs for organizing the business are low (Ferrell, Hirt, & Ferrell, 2018) . | The advantage of a partnership has over the Sole Proprietorship is that it brings together individuals with different talents and skills who share the responsibility of running the business. | A limited liability company exists as a separate entity, thus protecting its partners from being personally responsible/liable for any business obligations (Ferrell, Hirt, & Ferrell, 2018) . | The partners in corporations do not have personal liability for the debs incurred by the corporation. A shareholder is only allowed to risk the amount s/he invested in the company (Ferrell, Hirt, & Ferrell, 2018) . |
| The business owner has total ownership and control over the business. They are responsible for making all the critical decisions and day to day activities of the business. | Financing a partnership is easier because the business can acquire financial resources from different individuals. The partners can either contribute funds to the business or use their personal resources to secure bank loans (Ferrell, Hirt, & Ferrell, 2018) . | There is no double taxation in a limited liability company. Members have the flexibility to choose how their taxes will be paid, either by the LLC or individually. | A corporation has access to more financial resources as they can either sell stock or issue out bonds for financing |
| The owner is entitled to all the profits made by the business, and they are only taxed once on the owner’s personal tax returns (Ferrell, Hirt, & Ferrell, 2018) . | Continuity of the business in partnerships is rarely an issue. The partners can agree legally to allow the partnership to continue if one or more partners die. | There is flexibility in terms of income distributions as the profits are divided based on the ration that the partners think is appropriate (Ferrell, Hirt, & Ferrell, 2018) . | |
Disadvantages | |||
| Sole Proprietorship offers unlimited liability to the owner if the business is not successful. The owner is responsible for all the losses. | A partnership has an unlimited liability. If the partnership or the business loses money, all the partners are responsible for all the debts of the business if they cannot be recovered by the company’s assets (Ferrell, Hirt, & Ferrell, 2018) . | Legal and accounting costs are generally higher in LLCs when compared to sole proprietorships. | They are more costly to set up, which discourages small businesses from incorporating. |
| Sole Proprietorship has a limited life span, which is heavily dependent on the owner’s life span or his/her decision to terminate the business (Ferrell, Hirt, & Ferrell, 2018) . | In partnerships, decisions are shared, and disagreements may arise that could lead to conflicts among the partners. | They are more expensive to form, as it is challenging to raise capital through equity and debt financing (Ferrell, Hirt, & Ferrell, 2018) . | They may be subject to double taxation (Ferrell, Hirt, & Ferrell, 2018) . |
Ali Bush should register her business as a partnership as this will allow her to incorporate individuals with diverse talent, and they will share the responsibility for running the business. Ali Bush will all also be able to draw on the financial capabilities of her partners in order to run the business. Ali has plans to hire relocate the business and hire more employees to help as the business grows. Therefore, registering a partnership will be more beneficial to her than a sole proprietorship.
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References
Reference Ferrell, O. C., Hirt, G., & Ferrell, L. (2018). Business foundations: A changing world (11th ed.). New York, NY: McGraw Hill Education.
