A business is often defined as an enterprise or organized entity, most generally engaged in commercial, corporate, or professional activity for profit. A business can be domestic or international in nature, but more often than not, a business combines local, small-scale commerce with large-scale trading. It may be a sole proprietorship, partnership, corporation, cooperative or other form of limited liability company (LLC). A business is further defined as the collective efforts and actions of people for the purpose of generating and promoting goods and/or services for private gain and profit.
One can observe that there are four main distinguishing characteristics between a sole proprietorship and business ownership, and these are: independence, risk, generation of profits and control. These characteristics are generally related to how much control one exercises over the business, the larger the business, the greater the risk involved and the ability to generate unlimited profits. Consequently, a sole proprietorship is usually characterized by the ability to exercise complete control over the business; a partnership on the other hand, is characterized by limited control and profit potential.
sole proprietorship and partnership have their own set of disadvantages. For one, sole proprietorships are at a higher risk of failure than either a corporation or business debt. They are also subjected to personal bankruptcy when the owners cannot solve their problems and still continue to pay their creditors. On the other hand, corporations enjoy certain advantages. One advantage is that they do not need any approval from the government or other stakeholders for them to trade publicly and have their shares listed in stock exchanges.
Limited liability also allows owners to avoid personal losses and lawsuits related to business debts. Another advantage of corporations over partnerships is that they do not have to pay capital gains taxes until they turn a profit. On the other hand, the costs incurred during startup and operations of a corporation includes costs incurred for property to rent, expenses of building maintenance, and wages and salaries of all employees. Consequently, these start-up costs can sometimes outweigh the profit an enterprise makes.
In contrast, the rate of profit of a partnership is relatively lower than that of a sole proprietorship. It is because of this that the government disallows business owners to form a partnership to form a monopoly. If you own a sole proprietorship, you can lose your property overnight if your partner suddenly dies. On the other hand, if you are a partnership, your business can go under if one of its members suddenly dies.
The disadvantages of joint ownership or limited partnerships also apply to real estate. The higher rate of interest incurred by a partnership can make monthly installment impractical. The high interest rate can eat into your profits. On the other hand, a corporation is shielded from the burden of debts incurred by partners. Aside from this, limited partnerships are subjected to lesser taxation than corporations. For the reason that the government considers them to be operated for the benefit of all the stakeholders, they are entitled to less tax than sole proprietors.
Limited partnership can also give rise to serious liability concerns. Partnerships do not enjoy separate liability coverage. If a partner is found to be responsible for the death of another partner due to negligence or breach of fiduciary duties, the liability of the business will be Substantial. Therefore, limited partnerships should be operated in a manner that prevents them from becoming a cause of legal action.
These are only some of the pros and cons of owning different types of business. Before you decide on what type of business you want to have, you need to assess yourself the kind of owner that you really are. Are you a team player or someone who wants things done her way? If you are the first type of owner, then a partnership may be a good option for you. On the other hand, if you expect your business to make substantial profits, sole proprietorship may be a better choice.
