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Business Structures; Advantages and Disadvantages

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Business Structures Paper

Finance/571

August 5, 2013

Business Structures

Entrepreneurship is an excellent opportunity for individuals seeking the independence of running their own business. Starting a business can be a quite daunting task for anyone who is looking to do so. Potential business owners must be ready to invest much of their time and energy to the planning and startup phases of their business. Those activities include conducting research, creating a business plan, securing financing and marketing. Additionally, business owners also have to decide the type of business form that they would like to operate under. There are three main business structures in which entrepreneurs must establish their business. The following paper will detail the three business structures along with the advantages and disadvantages that each hold. Sole Proprietorships The first and most simple form of a business is a sole proprietorship. Within this form of business structure, the owner usually owns and manages all aspects of the business. Additionally, taxes are not paid on a sole proprietorship as a company; instead the owner pays taxes off of the income that is received from the business. As in all business structures, there are both advantages and disadvantages to operating as a sole proprietor. The advantages of sole proprietorships are minimal legal costs of formation; owners have absolute control over decision making and the ease of business sale. The disadvantages of sole proprietorships are all business decisions are the responsibility of the owner, lack of interest for investments and total liability of the business. Individuals that are seeking sole proprietorship would need to conduct a personal assessment to determine if they are fit to handle a business entirely on their own.

Partnerships Partnerships are the second form of business structure. Partnerships are formed between two or more people to finance and operate a business. Partnerships can either be established as general partnerships or limited partnerships. At times, individuals with similar business interest may form a partnership in order share responsibility and resources in operating a business. On the other hand, a partnership can be formed where one individual is solely a financial partner, while the other may be an operating partner. Partnerships come with their advantages and disadvantages as well. The advantages of partnerships are they are easy to establish, combines the skills and resources of two or more people and increases the ability to raise funding for the business. The disadvantages of partnerships are; profits must be shared, increased possibility of conflict, interdependence of decision making and unlimited liability. Regardless of the arrangement, partnerships are an excellent opportunity for individuals to join together and use their resources, finances and talent to create a successful business. Corporations Corporations are the third and most complex form of all the business structures. Corporations are the most familiar forms of business within the United States. Over 75% of business conducted within the U.S. is with corporations. The three types of corporations are General, S-Corp, and LLC. Corporations are the most complicated of the three based on the various levels of operation and extensive ownership of the companies. Although corporations are complex, they bear many advantages over the other forms of business. These advantages include the ability to raise massive amounts of capital; shareholders are not held personally liable, increased credibility and managed by a board of directors. The disadvantages to a corporation are money that it takes to incorporate, expensive legal fees, substantial amounts of paperwork and double taxation. Corporations require a lot more oversight and work, however if formed and operated correctly owners have the potential reaping major profits and rewarding benefits. Conclusion Entrepreneurs enjoy the freedom of doing what they love, while making money doing it. They enjoy the freedom, flexibility and excitement of making their own decisions and being their own boss. Additionally they gain the stability and control that could not be achieved by being a regular employee. Business Structures are available to provide options as to how an entrepreneur could form their business. Each structure provides advantages and structure. When formed properly, owners will find that their profits and opportunities are endless.

References
Parrino, R., Kidwell, D. S, & Bates, T.W. (2012). Fundamentals of Corporate Finance (2nd ed).

Hoboken, NJ: Wiley.

Planning Your Business: Research, Goals and Business Plans Video (2011). Retrieved from the University of Phoenix database on 8-5-13. http://digital.films.com/PortalPlaylists.aspx?aid=7967&xtid=42248&loid=116023

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