Types of Business Organization
Deciding on what type of organizationally structure to use for your new business has far-reaching implications and should be done in conjunction with an accountant and an attorney. The following factors should be considered when making this decision:
• How big your business will be
• The type of business you will be operating
• How much control you wish to have over day-to-day operations
• Your capability to deal with a more complex structure
• Vulnerability to lawsuits
• Tax implications
• Expected profits and losses
• Desire to reinvest earnings
• Accessibility of cash
Sole Proprietorships
Most small businesses at least start out as sole proprietorships. These businesses are owned by one person who usually is responsible for the day-to-day operation of the business. He or she owns all of the assets and profits of the business, but is also completely liable for any debts or legal actions.
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Advantages |
Disadvantages |
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Easy and cheap |
Unlimited liability |
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No sharing of authority |
Business and personal assets in danger |
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Can keep or reinvest income |
Capital may be hard to come by and may be limited to personal loans or savings |
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Profits are directly applied to personal taxes Easy to disband |
Hard to attract high quality employees due to lack of advancement opportunities |
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Some employee benefits are not directly deductible from business income tax return |
