What are the advantages of corporation over the other two forms of business organization?
One of the first steps in starting a new business is determining how your company should be structured. You need to know the advantages and disadvantages of each of the different forms of business organization to make sure you’re making the right decision for your new business. Show All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, lifespan and financial structure. The form of business determines which income tax return form to file and the company’s and owners legal liabilities. This is a big decision that has long-term implications, so if you’re unsure of which form of business is best for your company, you’ll want to consult a professional. Luckily, there are several business counselors and centers across Missouri offering free assistance in forming a business that are knowledgeable and ready to help. When you’re forming your new business, you will want to take into account the following:
Keep in mind, at this stage of starting a new business you can be overwhelmed with a lot of information. Clear the clutter and fill out our help form so we can assist you in coming up with a plan that is personalized for your business and life. Bonus: our services are always free. Now let’s dig into the different forms of business organization. Sole proprietorshipThe vast majority of small businesses start out as sole proprietorships. These businesses are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietors can be independent contractors, freelancers or home-based businesses. Sole proprietorship advantages
Sole proprietorship disadvantages
Advice: When looking at setting up a sole proprietorship, assess what type of liability you have. If you’re selling advice or services, you may need an errors and omissions insurance policy to cover yourself against claims for negligence. Determine what you have to lose. Do you own a home or savings account? Your personal assets could be at risk in the case of a lawsuit. PartnershipsIn a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out or what steps will be taken to dissolve the partnership when needed Disclaimer: If you’re establishing a partnership, it is extremely important to make sure everything is outlined in case things go sour, especially in the case of starting a business with a loved one or friend. Seek legal advice to create a partnership operating agreement to hash out all business decision possibilities including succession or exit plans. There are several legal services in Missouri ready to assist you every step of the way. Partnership advantages
Partnership disadvantages
CorporationsA corporation is considered by law to be a unique entity, separate from those who own it. A corporation can be taxed, sued and enter into contractual agreements. The corporation has a life of its own and does not dissolve when ownership changes. There are three types of corporations: C-corporation, S-corporation and Limited Liability Company. C-corporationA C-corporation is a corporation that is taxed separately from its owners. It gives the owners limited liability encouraging more risk-taking and potential investment. C-corporation advantages
C-corporation disadvantages
S-CorporationAn s corporation also known as subchapter S-corporation offers limited liability to the owners. S-corporations do not pay income taxes rather than the earnings and profits are treated as distributions. The shareholders must report their income on their individual income tax returns. S-Corporation advantages
S-Corporation disadvantages
Limited Liability CompanyA limited liability company or LLC is a hybrid business structure that provides the limited legal liability of a corporation and the operational flexibility of a partnership or sole proprietorship. However, the formation is more complex and formal than that of a general partnership. Advice: Forming an LLC requires the business owner to file legal paperwork. You may want to consult an attorney to assist you with the process. Limited liability company advantages
Limited liability company disadvantages
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