Selecting the Optimal Business Structure: An Analysis of the Four Major Forms of Business Ownership.

Essay by brettwalterUniversity, Bachelor'sA+, April 2004

download word file, 4 pages 5.0

Thinking about starting your own business? What

legal form of business will you choose? An individual can form a business in one of several ways. The four major forms of business ownership are (1) sole proprietorships, (2) partnerships, (3) corporations and (4) limited liability companies. There are numerous issues to evaluate when determining the appropriate legal entity for business operations. While some of the ownership options seem to offer more incentives and fewer drawbacks than others, the company's business plan and overall objectives of the business owner will ultimately be the driving force in the selection process.

For this paper it is my intent to analyze the four primary forms of business ownership. I will examine the advantages and disadvantages associated with sole proprietorships, partnerships, corporations and limited liability companies to include the areas of initial start-up, limitations, risks, and tax concerns.

The sole proprietorship is an organization that is owned, and usually managed, by one person.

Sole proprietorships are currently the most popular business form in the United States today. According to 1997 figures posted by the IRS, sole proprietorships represented 75 percent of the approximate 24 million businesses operating in the United States(Hawkins). Some reasons why an individual might start up a sole proprietorship include the opportunity to be their own boss and set their own hours and the prospect of retaining company profits.

The popularity of sole proprietorships can largely be attributed to their ease of starting and ending the business venture, coupled with the fact that they are generally inexpensive to start. A business license is sometimes required by the state or city prior to initiating a sole proprietorship, other than that there are no special documents needed. If a sole proprietor wishes to terminate their business they need only to pay off their debts and...