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Business
entity types and what is the right choice for you - For the most
part, businesses fall under one of three categories: sole
proprietorships, partnerships, and corporations. As you might
suspect, each has strengths and weaknesses, meaning the choice of
deciding which is best-suited to your vision is not going to be
easy. That's good, though. If it were easy, what would be the
challenge in building something successful?
Each year, thousands of Americans launch
their own businesses.
| Sole
Proprietorships |
| Sole proprietorships, companies with a single owner,
are the most common type of start up. This type enterprise is
rooted in this country's beginnings, when ideals like
self-reliance, rugged individualism, and hard work were the
basis of commerce. To this day, sole proprietorships remain
the most common type company in part because of their size.
The initial investment is usually a modest one, and the
business is based on the particular interests or experiences
of the individual. In addition, there is the emotional
satisfaction of "being your own boss". At the same
time, all the major decisions fall on the shoulders of the
single owner, who also assumes all of the risk should the
business fail. Making such an enterprise succeed requires more
than a willing spirit, it rests on the need for the product or
service that's being offered. That, ultimately, will determine
how long a company stays afloat, and if it will grow and
become prosperous. |
| Partnerships |
| When two or more people pool their financial and
intellectual resources, they have formed a partnership.
Frequently, these are professional agencies such as law or
architectural firms, medical and dental practices, and
accountants or advertisers. Obviously, you're not limited to
these ventures, they just appear to be the most common
examples. The tech world lends itself to the biggest advantage
of partnerships in that there is more than one function to
fill. There's an analogy used by business professors with a
doughnut shop as the example: there has to be a person to make
the doughnuts, and there has to be a person to sell them;
everyone else is overhead. Partnerships allow for combining
skills, with each participant focusing on his/her area of
expertise. The obvious downside is the potential for conflict
among the principals. Over time, people change and their goals
or vision for the business can, too. |
| Corporations |
The
third alternative for forming a company is a corporation,
whose employees can number into the thousands and whose
ownership may include stockholders. This type enterprise is
usually involved in the mass manufacture of a product like
cars, beverages, and heavy equipment or it provides a
large-scale service such as airline travel, gasoline
refinement, or department store. There are several different
types of corporations, to include both publicly and
privately-owned entities, non-profit agencies (United Way,
Cancer Society, some universities), and even individuals of
extreme wealth who incorporate to escape high taxes.
Perhaps the greatest advantage of a corporation is the limited
liability afforded to officers; if the business fails, the
penalty is spread among numerous people. When sole
proprietorships or partnerships go under, the financial damage
is far more concentrated. Another advantage is that the
corporation outlives the founder. Ford Motor Company, the
Wrigley's gum company, and Sears are just a few examples of
how a business chugs on long after its originator has died. On
the other side, there are heavy costs and potentially heavy
taxes associated with incorporation. All pay a corporate tax
and individual shareholders face taxes on dividends. In
addition, the government can require disclosure of finances
and even some operations. |
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