Sole proprietorship, partnership, and corporation are the forms of businesses in which one can choose to operate. However, the legal requirements and steps needed to be taken in either of the three types of businesses are different. Sole proprietorship refers to a business owned by an individual (Skripak, 2016). The person bears all the costs of the business, owns all assets, and does not share profit made through its operations. The legal requirement for a sole proprietorship is simple since the owners only need to have necessary licenses, business certification in their name, and tax indemnification numbers. Indeed, a sole proprietorship is the simplest form of business one can operate.
Partnership refers to a business owned by at least two individuals with an agreement to share the profit it generates from operations. The business needs to have a legal contract or partnership deed besides tax identification number, certification, and necessary licenses. The law requires a partnership agreement to have a firm and all partners’ names and addresses, the nature of their business, and the decision-making process (Skripak, 2016). Additionally, it should show each partner’s capital contribution, how profit and losses will be shared, and the process of admitting new partners, dispute resolution strategies, and partnership dissolution steps when needed.
A business entity owned by shareholders, and having a board of directors elected to oversee its operations is a corporation. Unlike sole proprietorship and partnership, the law regards a corporation as an artificial being, and it is liable for all its finances and actions (Skripak, 2016). Legal requirements for a corporation formation include business and its registered agent’s names and addresses, purpose, and stock information. Skripak (2016) adds that a corporation also has ongoing legal obligations, comprising tax identification number, licensing and professional standards, annual registration, meeting minutes, securities, first and subsequent board meetings, and bookkeeping.
The variations of the forms of business that have developed are related to how they are set and managed. Notably, the complexity of starting and managing a firm increases as one moves from sole proprietorship to a corporation. The form of business that I am familiar with is the sole proprietorship. This form of business is more comfortable to establish and common among entrepreneurs. In conclusion, legal requirements, and steps needed to start a sole proprietorship, partnership, or corporation influence businesspersons decisions on the form of business they will set up.
Reference
Skripak, S. (2016). Fundamentals of business. Virginia Tech.