Advantages and Disadvantes of Corporations vs Sole Prop and Parternerships

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Date Submitted: 02/26/2013 06:26 PM

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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


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


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...