Pros and Cons of Popular Forms of Business

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Information about Pros and Cons of Popular Forms of Business
Business & Mgmt

Published on March 4, 2014

Author: SamanthaMcNair

Source: slideshare.net

Description

Briefly discusses pros and cons of popular forms of business and how these business can reduce their liability exposure. Includes sole proprietorship, general partnerships, limited partnerships, corporations, and limited liability corporations.

Pros & Cons of Popular Forms of Business Samantha McNair

Primary Business Entities In owning and operating a business it is important to understand the numerous forms of business organizations available today. These types of business organizations include : • Sole Proprietorship • General Partnership • Limited Partnership • Corporation (inc.) • Limited Liability Corporation

Sole Proprietorship Pros • Simple formation. • Owner is solely responsible and does not have to worry about actions of partners. • Taxed at personal income level. Cons • Owner is solely responsible and held personally liable. • Both business and personal assets are liable and subject to lawsuit. • Does not qualify for specific tax advantages that corporations enjoy. Reducing Liability: Ensure ethical and legal conduct, liability insurance, and changing business to a LLC. Transfer or “sell” large personal assets to spouse to limit exposure.

General Partnership Pros • More partners = more money available for investment. • Responsibilities and management can be divided Cons • Partners are all responsible and held personally liable. • Both business and personal assets are liable and subject to lawsuit. • Unlimited liability for firm debts. Reducing Liability: Ensure ethical and legal conduct, liability insurance, consider changing business to a limited partnership. Transfer or “sell” large assets to spouse to limit exposure.

Limited Partnerships Pros • Owners are treated similar to shareholders. • No liability beyond loss of investment (including business debt). Cons • LP’s are held in accordance with state statutes, where requirements may vary. Reducing Liability: Ensure ethical and legal conduct, employee training in areas such as safety, diversity, and sexual harassment in the workplace. Liability insurance is essential.

Corporations Pros • Business is viewed as a separate entity from the owners. • Business is treated as an artificial being with the ability to own property, borrow money, pay taxes, and be sued. • Owners are not personally liable beyond their investment in the company. Cons • Subject to double taxation as corporation and shareholders pay taxes on profits. Reducing Liability: Ensure ethical and legal conduct, employee training in areas such as safety, diversity, and sexual harassment in the workplace. Liability insurance is essential.

Limited Liability Corporations Pros • LLC’s avoid double taxation. • Liability is limited to corporate assets and investments. Cons • Owners are held liable for shareholder interests. • Formation may require assistance from an attorney. Reducing Liability: Ensure ethical and legal conduct, employee training in areas such as safety, diversity, and sexual harassment in the workplace. Liability insurance is essential.

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