Answer to Question #212103 in English for elisa

Question

 strengths and weakness of the various legal statuses or frameworks a business start-up may consider (eg. Sole trader, Ltd, Charities)

Answer 1

• Sole Proprietorship

From a legal standpoint, the owner and the proprietorship are the same.

Advantages

• It's the easiest to set up because it doesn't require the filing of any papers.

States do not require the registration of proprietorships.

• Profits are only taxed once on the owner's personal tax returns.
• The owner has complete control of the business and makes all the decisions.
• Tax forms are not complicated.
• Assets are easy to liquidate upon the death of owner.

Disadvantages

• The owner is exposed to unlimited legal liabilities. If you lose a lawsuit, you could lose your home, car and other personal assets.
• Proprietorships cannot accept capital from outside investors.
• Borrowing money is more difficult. Banks are reluctant to make business loans to sole proprietorships. You will have to rely on savings, home equity loans or loans from family members.
• Business will be liquidated when owner passes away.

• Partnership

A partnership is a sole proprietorship that allows the business to have more than one owner.

Advantages

• They're easy to form.
• A partnership can bring together a group of individuals with different talents to share in the responsibilities of running a business.
• If the partnership agreement permits, a partnership could continue to exist if one of the partners dies.

Disadvantages

• Partners are exposed to unlimited liabilities.
• Owners will not always agree on decisions. This could lead to management conflicts.
• Partners share in the profits of the business, but will not always feel they are being adequately compensated for their contributions and services.

• Limited Liability Company

Advantages

• The owners have limited liability. The owner's personal assets are protected from judgments and defaults on company debts.
• Owners can choose how the business pay taxes. It could be a proprietorship, a partnership or a corporation.
• Most states don't require LLCs to have annual meetings.
• An LLC is not required to have a board of directors.
• The number of shareholders is unlimited.

Disadvantages

• Legal and accounting costs are higher than proprietorships.
• LLCs must file articles of incorporation with the state of domicile.
• Owners create an operating agreement that defines management authority and limits to making decisions.
• In some cases, an LLC will cease to exist upon the death of a member, unless otherwise specified in the operating agreement.

• Corporation

A corporation is a legal entity that's completely separate from the shareholders who own stock in the company. It has the authority to enter into contracts and buy and sell property. A corporation can sue other parties but can also be sued.

Advantages

• Owners do not have personal liability for debts of the corporation. A shareholder only risks the amount of the investment in the company.
• Has more access to financial resources. A corporation can sell stock to raise capital, obtain bank loans or issue bonds for long-term financing.
• Corporations are better able to attract more talented and skilled employees than proprietorships.
• The corporations continues to exist separately from the lives of its stockholders.

Disadvantages

• A Corporation is the most complex business structure and requires a lawyer to set up.
• Earnings could be subject to double taxation.