People who wish to open a business can do so through three (3) different forms – sole proprietorship, partnership, or corporations. Each holds its distinct advantage over the other as well as their corresponding disadvantages. The choice of what form to take would depend on the business goals set at the beginning. It is possible for a business to initially adapt one form and change to another in the course of operation to accommodate developments that come with time.
A sole proprietorship is the easiest form among the three because of lesser documentary requirements and the absence of the need to consult several people when making business decisions. The start-up cost is lower and no payroll will be required to be set up in businesses having no employees. It is however fit for smaller scale businesses since the owner represent the company fully and legally. This means that the owner is personally liable for all actions of the company, including debts that may be incurred during operation. The ability to raise capital is very limited in this form of business.
Partnerships are arrangements between two or more people or business entities where they agree to work together for their common interests. This includes contributing money and/or industry to a common fund having the intention of dividing the profits among the partners. A partnership has a separate juridical identity from individual partners where liability can be unlimited or limited. It is dissolved when a partner dies or leaves the partnership.
The most preferred form of large businesses is the corporation. It provides the most effective business organization required in having several shareholders owning the company. That said, it is still the most difficult to create, manage, and organize due to the standard requirements to start and operate one. However, corporations usually have the advantage of having accounting, consulting, and legal professionals do the work. Shareholders of corporations are only liable to the extent of their investment in relation to the debts and obligations of the corporation.