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Date Submitted: 01/26/2015 04:08 PM
Business Structures
FIN/571
Business Structures
There are four main forms of business structures, each with their own advantages and disadvantages. The structures of these businesses differentiate based on liability, tax implications, and what type of business for determining what structure to use. This paper will cover the advantages and disadvantages within the four types of business structures; Sole Proprietorships, Partnerships, Corporations, and Hybrid Structures.
Sole Proprietorships
A sole proprietorship is a business that is owned by a single individual, and this type of business structure makes up around 75 percent of all the businesses in the United States. This business structure has several advantages in it is the easiest type of business to start, it is the least regulated by the government, the owners is entitled to 100 percent of the profits, and the decision making process does not have to be shared. The biggest advantage is a sole proprietorship is the owner receives lower income tax rates, meaning more profits.
While there are many advantages, the disadvantages to this business structure are about the individual owner. With a sole proprietorship, the owner is responsible for all of the business debts and obligations of the company. Beyond the assets of the business itself, creditors can look into the personal wealth of the owner for payment, and the equity of the company is limited to the wealth of the owner. The last disadvantage is it is difficult to sell or transfer ownership because there is no stock or interest to sell, meaning the owner has to sell the assets, greatly reducing the value the owner will receive should they sell the business (Parrino, 2012) .
Partnerships
A partnership is a business that consists of two or more owners who join to manage a business. In the United States, around 10 percent of businesses use this business structure. To form this business structure, owners will enter into an agreement to detail what...