Different Types of Business Organizations
One of the most important decisions any business owner will face when starting a new business is deciding on what structure the business will take. Some of the factors which will assist you in making that decision include.
Listed below are some of the advantages and disadvantages associated with types of business organizations including sole proprietorship, partnership and corporation.
A sole proprietorship is the least expensive and easiest way to start your business. What is simpler than finding a location for your business and opening the doors? All right, I might have oversimplified it there, but it really is pretty easy. You will have to register a business name and obtain other local licenses which will depend on your local government. There will also be fees associated with obtaining them. Hiring an attorney would be a smart move and the attorney fees will be less than other forms of business as there is a smaller amount of documents to be filed because the owner of the business has the final word in all business decisions.
The thing with partnerships is that there are several different types. The two most common types of partnerships are limited partnerships and general partnerships. Two or more people can form a general partnership through a simple oral agreement. Starting a partnership with an oral agreement is not recommended, you should get legal documents drawn up by an attorney. You can expect the fees for this to be higher than a sole proprietorship, but they should be less than what you would expect for incorporating. A large benefit for having a legal partnership drawn up is it will aid you in resolving any future business disputes. A down side to a partnership is that a partner can be held responsible for the actions of other partners in the business in addition to their own actions.
Some of the things included in a partnership agreement:
Incorporating your business does not require that you have an attorney, however it is highly recommended. The structure of a corporation is complex. It is more expensive to organize it than the other two business entities. Corporate control lies with the person who has ownership of the most shares of stock. If a single stockholder or a group of stockholders own at least 51% of the stock they can make decisions of policy. Corporations will have annual meetings of stockholders and regularly scheduled meetings for the board of directors with records kept to document their decisions. The size of the corporation will affect how formally or informally it can operate. Smaller corporations might operate less formally, but still need to keep proper documentation. Stockholders can hold officers of corporations liable for any actions which might have been improper. In those kinds of cases stock ownership is generally where the liability is limited to unless there was a fraud committed. An attorney can help you decide to incorporate as either a C or S type corporation.
Mar 15, 2008