There are several legal forms of business that people may choose to start running. A decision about a certain form of business that an entrepreneur will choose depends on various factors. Some of these factors and situations are discussed below.
Sole Proprietor
In a situation when an individual feels like having full control of the business operations, for instance, making final decisions on key business issues, sole proprietor will be the best form of business to undertake (Legal Forms of Business Comparison, n.d). One person can start and manage this form of business with ease.
The above scenarios are not common for the other forms of businesses. Remarkably, the other legal structures have more than one person in the management. As a result, it will lead to sharing of opinions implying that chances of using an individual’s opinion are minimal.
General Partnership
Preference of this form of business can arise in a situation when a group of people would like to run a business that they have full control over. Thus, each partner is actively involved into the managerial affairs (Legal Forms of Business Comparison, n.d). Moreover, in circumstances where people want to share losses, this form of business will be of preference to a one-person business. The above scenarios are applicable, since not all members are occupied in the managerial section. Regarding the issue of sharing losses, general partnership will be of preference to sole proprietorship because in the latter the owner bears all the losses.
Limited Liability Partnership
A scenario where a group of people would like to be partially responsible for the business losses can lead to the preference of this form of business. This is true when it comes to comparing this form of business organization to sole proprietorship and general partnership. Notably, in case of the business incurring debts the members in this form of business only become liable to a certain extent as opposed to the first two forms of business (Which Legal Form Is Best for Your Business?, Incorporation Article | Inc.com, n.d.).
Limited Liability Company LLC
This form of business perfectly suits those who want to minimize the paper work and find the best ways to pay taxes. This can be contrasted to an S corporation where maintaining of the records is hectic as the government imposes strict conditions on record keeping (Media, n.d.). Further, LLC is its own legal entity as opposed to S corporation, which have separate legal entities from its owners. This means that members of LLC can decide on how they will pay taxes, since they are part of the company.
S Corporation
When entrepreneurs want the business to continue operating even in cases of their deaths, S corporation will be the best option. This feature is the perpetual life of a company (Murray, n.d.). A form of business like a sole proprietor will cease to exist in case of the death of the owner. This characteristic coupled with that of separate entity treats the businesses and the members as independent from each other.
Franchise
In case when a person requires gaining from an already established business and even needs more training, franchise will be the best option (Media, n.d.). In comparison to sole proprietorship, making a brand name in business requires tolerance. This does not happen in a short period of time. Additionally, the available resources that franchises are willing to invest in a person will make this form of business the best one.
Corporate form
Lastly, if one needs to raise more capital and develop self-confidence in investors, a corporate form of business will be of high preference. The regulations in the corporate’s board give more trust to all stakeholders (Media, n.d.). Compared to partnership and sole proprietorship, which do not have perpetual life, corporate form of business will be able to acquire more funds.
References
Legal Forms of Business Comparison. (n.d.). KCSourceLink. Web.
Media. (n.d.). Business Models & Organizational Structure | Chron. Small Business. Web.
Murray, J. (n.d.). Businesses – Types of Businesses. Types of Business – Filing Business Taxes – Taxes and Legal Issues for U.S. Small Business. Web.
Which Legal Form Is Best for Your Business?, Incorporation Article | Inc.com. (n.d.). Small Business Ideas and Resources for Entrepreneurs. Web.