Last week, I posted two articles for entrepreneurs on Storeboard.com -- “Should Today’s Economy Spur You To Be A Sole Proprietor?” and “When A Business Should Consider Franchising.”
Today, I was prepared to post a third article for entrepreneurs -- an article on limited partnerships based on an article I wrote for a client. However, I noticed that one of the resources that I used for that article was way……………better than the article. Consequently, I decided to share that resource with Storeboard.com’s readers rather than write a second article on limited partnerships.
The resource is an Entrepreneur magazine article entitled “The Basics of Business Structure” written by corporate attorney Michael Spadaccini. You can read the entire article here. Below I am posting many of the pros and cons of the four business structures that Spadaccini analyzed.
The Pros And Cons Of Corporations, LLCs, Partnerships And Sole Proprietorships
The Pros Of Corporations * Owners are protected from personal liability for company debts and obligations. * Corporations are the best vehicle for eventual public companies. * Corporations can more easily raise capital through the sale of securities. * Corporations can easily transfer ownership through the transfer of securities. * Corporations can have an unlimited life. * Corporations can create tax benefits under certain circumstances, but note that C corporations may be subject to "double taxation" on profits.
The Cons Of Corporations *Corporations require annual meetings and require its leaders to observe certain formalities. * Corporations are more expensive to set up than partnerships and sole proprietorships. * Corporations require annual fees and periodic filings with the state.
The Pros Of Limited Liability Companies * LLCs do not require annual meetings and require few ongoing formalities. * Owners are protected from personal liability for company debts and obligations. * LLCs enjoy partnership-style, pass-through taxation that‘s favorable to many small businesses.
The Cons Of Limited Liability Companies * LLCs do not have a reliable body of legal precedent to guide owners and managers. * An LLC is not an appropriate vehicle for businesses seeking to become public eventually, or to raise money in the capital markets. * LLCs are more expensive to set up than partnerships and usually require annual fees and periodic filings with the state. * Some states do not allow the organization of LLCs for certain professional vocations.
The Pros Of Partnerships * Owners can start partnerships relatively easily and inexpensively. * Partnerships do not require annual meetings and require few ongoing formalities. * Partnerships offer favorable taxation to most smaller businesses. * Partnerships, unlike LLCs and corporations, often don’t have to pay minimum taxes.
The Cons Of Partnerships * All owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business except in the cases of limited and limited liability partnerships. * Individual partners bear responsibility for the actions of other partners. * Poorly organized partnerships and oral partnerships can lead to disputes among owners.
The Pros Of Sole Proprietorships * Owners can establish sole proprietorships instantly, easily, and inexpensively. * Sole proprietorships carry little, if any, ongoing formalities. * Sole proprietors don’t have to pay unemployment taxes for themselves. * Owners may freely mix business and personal assets.
The Cons Of Sole Proprietorships * Owners are responsible for all of the debts, losses, and liabilities of the business. * Owners cannot raise capital by selling an interest in the business. * Sole proprietorships rarely survive the death or incapacity of their owners.
Martin Zabell has been a professional writer for 31 years and has written dozens of business advice articles.
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