Corporation, a sole proprietorship and a limited liability company

Sole Proprietorship

 

Advantages:  Owner has complete freedom in decision-making, sole possession of profits and the least legal restrictions in the formation of the company and no formal of legal structure just need to register your Trade Name. Sole Proprietorships have low start-up costs and can usually be started without having to lease or purchase a building. Sole Proprietorships enjoy no federal income tax at entity level.

 

Disadvantages: Unlimited liability making the owner liable for all business debts; being a sole owner usually limits your avenues to available capital and could make it difficult in obtaining long-term financing.

 

The main difference between a sole proprietorship and a LLC is that an LLC does give you that liability protection.

 

Limited Liability Company

 

Advantages:  A single-member can inexpensively start and run an LLC with relative simplicity. A business license that has to provide a limited disclosure of ownership. Unlike corporations and sole proprietorship, partners of an LLC can operate the business without exposing themselves to personal liability, only the business assets are subject to creditors’ claims.

 

Disadvantages: May have problems if multiple owner hierarchy structure is not defined at the beginning and in case of withdrawal of ownership, bankruptcy or Death the company may be able to continue to operate depending on the legal arrangements the partners agreed to.

 

Corporations “C” “S”

 

Advantages of a C Corporation it offers separate legal entity and limited liability for stockholders unlimited life of business. Transfer of ownership is easily done through sale of different classes of stock. There are many tax breaks offered through C Corp’s that are not available through other business paths.

 

Disadvantages of a C Corporation they are the most expensive to start and can be very organizationally complex. Double taxation is a large downside of owning a corporation, the earnings are taxed at the corporate rate as income to the corporation, then money distributed to the shareholders taxed are again as dividends.