Submitted by: Submitted by horse
Views: 383
Words: 417
Pages: 2
Category: Business and Industry
Date Submitted: 02/26/2013 06:26 PM
2) Discuss the advantages and disadvantages of sole proprietorships, partnerships, and corporations:
Corporations have many advantages over partnerships and sole proprietorships, but there are also
some disadvantages as well. I will discuss these in depth.
Some of the advantages of a corporation versus a sole proprietorship or partnership include the
following:
Shareholders in a corporation are not liable for corporate debts. This is the most important reason
for incorporating. In a sole proprietorship or a partnership, the owners are personally responsible
for business debts. If the assets of the sole proprietorship or partnership cannot satisfy the debt,
creditors can go after each owner's personal bank account, house, etc. to make up the difference.
On the other hand, if a corporation runs out of funds, its owners are usually not liable.
Another advantage corporations offer is in the self-employment tax savings. Earnings from a sole
proprietorship are subject to self-employment taxes. With a corporation, only salaries are subject
to such taxes. This can save a business thousands of dollars per year.
Finally, corporations make raising money easier. A corporation has many ways to raise capital. It
can sell shares of stock and create new types of stock, such as preferred stock, with different
voting or profit characteristics.
The advantages of a sole proprietorship and partnership versus a corporation include the
following:
Sole proprietorships and partnerships cost less to establish. Corporations cost more to set up and
run than a sole proprietorship or partnership. For example, there are the initial formation fees,
filing fees and annual state fees.
Sole proprietorships and partnerships tend to have minimal formalities. A corporation can only
be created by filing legal documents with the state. In addition, a corporation must adhere to
formalities. These include holding director and shareholder meetings, recording corporate...