A sole proprietorship is a business form that includes just one owner. This business form is special in that there is legally no difference between the business and the owner. They are considered one and the same. Although there are advantages of this form, such as flexibility in setting work hours and profits of the business remaining in scope of control, there are also many disadvantages. One prime example that is probably the most discouraging is liability. If the business fails or financial obligations are not met, the responsibility is solely on the owner. Another disadvantage is not having the freedom to bring in anyone as a partner. The business relies on the owner, so if capital is not readily available, it may not be easy to come by. Overall, sole proprietorships are the most common and easiest businesses to start up.
A general partnership is much like a sole proprietorship except for one major area. This business form is allowed to have partners, which is an advantage. General partnerships also have flexibility in work schedules and share the profits amongst each partner. Another advantage is the partners can collaborate to make key decisions regarding the future/demise of their business. A major disadvantage is these partners are fully responsible for the business and are legally liable, even for the misactions of a fellow partner.
"The partner's liability is limited to the amount of his or her investment in the venture. A limited partner has no voice in management, no involvement in the day-to-day running of the business." (Stevick 2006). A limited partnership is not only beneficial for the limited partner, but for the general partner as well. The limited partner gets to invest however little or much he/she wants and reap the benefits of a business. The general partner gets to add a valuable source to the business while maintaining in control of normal day-to-day decisions. While the limited partner enjoys limited liability, the partnership will still have to be formed under state statutes.
"For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders." (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Corporations). The major disadvantage of having a C Corporation is double taxation. Since the corporation is a legally a separate taxpaying entity, they are responsible for the corporations taxes on net income. The corporations must then pay shareholders their dividends, which are then taxed again.
S Corporations differ from C