- Understand the factors that go into choosing the best organizational type for your business
- Understand the advantages and disadvantages of sole proprietorship
Different Ways to Own a Business
The way a business is formed as a legal entity has implications far beyond the business. If you select the wrong form of business ownership, if your business fails and you can’t repay your business creditors, then you could lose your home, car, and most of your personal belongings. Or, you could find yourself in a position of owing a large sum of money to the Internal Revenue Service that you did not expect. Did you realize that if your business has not been formed in a way that protects you if someone slips and falls in your store that you could be personally liable for their pain and suffering?
Each form of ownership has advantages, disadvantages, risks, and rewards that can affect the business’s chances for long-term success.
These are a few reasons why it’s important to understand the different legal forms of business ownership. One of the first and most important decisions a business owner makes is selecting the organizational form under which he or she will operate. The following are some common organizational types (also called legal structures):
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability partnership (LLP)
- C corporation
- S corporation
- Limited liability company (LLC)
- Franchise